Investment risk
Investment risk
All investments involve a certain level of risk and you should think about how much risk you’re comfortable with. Your pension fund value can go down as well as up and you may not get back what you put in.
Putting all your savings into one high-risk investment fund until the moment you retire would be considered risky but so too would putting them all ‘safely’ under your mattress, where they wouldn’t earn you any investment return at all.
Investing is about finding the balance that’s right for you and your circumstances.
Types of risk to think about:
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Low long-term returns
Being too cautious may mean slower growth over time but some level of caution can protect you from short-term market ups and downs (see 3). -
Annuity pricing
If interest rates fall, the price of an annuity will rise, which could give you a lower income. If interest rates rise, the price of an annuity will fall, which could give you a higher income.
The annuity focused fund aims to remove some of this risk by matching movements in annuity prices. See Retirement options for more information.
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Market ups and downs
World events can affect investment prices overnight. We saw this with the property crash of 2008, the war in Ukraine, and the 2022 mini-budget. Switching investments at the wrong time could mean you lock in these losses or miss out if the market rebounds. -
Your circumstances
You attitude to investment risk might also depend on:- your general attitude to risk
- other pensions or savings you have elsewhere
For example, if you also have a pension from a previous employer or substantial savings, you may feel more relaxed about the amount of risk you’re prepared to take with your pension fund investments in the Plan.
