The recent stock market slumps, thanks to the 2026 Iran War, can be worrying. Find out why you don’t need to panic if your pension loses money.
The recent market ups and downs won’t come as any surprise to long term investors, as the stock market has always been volatile. In the last few years alone, we’ve seen three big worldwide crashes: 2025 (when Trump announced tariffs), 2022 (stock market decline) and 2020 (Coronavirus lockdowns).
While some individual companies may not survive crashes, historically stock markets have always recovered over time – and helped investors achieve better returns over a long term than they would usually get from securer cash savings accounts.
Let’s look at what the current market volatility means for your pension investments, and why I don’t think most people need to worry.
What a downturn and recovery can look like
To illustrate what stock market volatility can look like – and how it can recover, here’s an example screenshot from one of my own stocks and shares ISAs:
I opened the ISA in December 2024, and by April 2025 it was showing a loss of 13%, thanks to the impact of Trump’s tariff announcements. However, by June it had recovered, and by October it was up by 12%. I invested more money in December 2025, and even with the current stock market dip I am still up by 7%.
While cash investments are more reliable, I would not have been able to achieve this growth in a cash ISA; the best rate I can find right now with a quick online search is 4.68%.
I invest with a long term view, so short term stock market fluctuations like the ones you can see above don’t worry me. I’d rather take the risk of investing than play it safe with potentially smaller returns on cash savings.
Why you shouldn’t worry about your pension losing money right now
So what does market volatility mean for your pension? If you have a defined benefit pension, then stock market fluctuations like the one illustrated above shouldn’t worry you, as your income is usually guaranteed and not directly affected by them.
If you are several years away from retiring, a short-term drop shouldn’t be alarming as the market has plenty of time to recover. In fact, you’ll probably ride out a few more ups and downs before you retire.
If you’re closer to retirement, or already retired, a dip in the market it can be more worrying as it reduces your potential retirement income. But try not to worry too much, as any loss is only ‘on paper’ until you actually withdraw your money (this known as ‘crystallising’). The market can still potentially recover and you could make those losses back again.
What to do with your pension when the stock market crashes
So what should you do if your pension has lost money in a stock market dip or crash? If you are not yet ready to withdraw your pension, you don’t usually need to do anything. Personally I don’t even look at mine to see what it is worth, as it would only panic me! The general advice is to leave your money where it is and let it grow again when the market recovers, as it traditionally has.
If you’ve been thinking about taking some of your 25% tax-free allowance, you might want to wait until the market recovers, if you can, and your assets are more valuable again. If you withdraw money right now, you could get less than if you were to wait a few weeks or months.
If you are in pension drawdown already, you might choose to reduce your outgoings and take as little as you can right now. If you have cash savings you can access, you could decide to use these for expenses to tide you over.
Another alternative could be to get a 0% balance credit card and move any balances from other cards to that, and use it for living expenses in the short term. When the market recovers you can clear the balance. However, make sure you make any minimum payments required, and clear the balance before interest becomes payable.
If you have any money in Premium Bonds, you may decide to cash some in to keep you going until the market recovers and you are happy withdrawing from your pension again. You can always buy back Premium Bonds to replace those you have sold then.
Don’t succumb to pension panic!
It can be concerning seeing your pension lose money, but do try not to panic. In December 2025, worried about a potential cut in the tax-free allowance, thousands of savers in the UK removed money from their pensions – a move that is irreversible. The decision to withdraw money earlier than planned means these people will have potentially missed out on growing their pension funds over time.
So try not to worry. Keep yourself as informed as you can, and remember that saving for your future is a long term strategy.
Risk warning: As always with investments, your capital is at risk. The value of your investment can rise or fall, and you could receive back less than you invest. This information should not be considered as financial advice.
