Your pension and the stock market

Person using laptop to check on their investments, in an office setting

Investors, and therefore pension scheme members, have faced one thing after another in recent years. From the Covid-19 pandemic in 2020 to the invasion of Ukraine by Russia in 2022, the persistent rise in inflation and then the rises in interest rates to reduce inflation and the cost of living crisis, it's been non-stop.

All these events – and more – can unsettle stock markets. And these events, including a health crisis and geopolitical risk, can also affect the value of money held in your pension. Today’s 24-hour cycle of news and information can sometimes make things look worse than they really are at least in the short term. Relax, and read on.

Pensions funds invest in company shares, bonds, property and money market instruments (short-term deposits, also known as cash) with the aim of helping people like you save for retirement.

The reason why pension schemes make investments in company shares and bonds, rather than leave your money on deposit, is because inflation can – and will – reduce the value of your pension savings over time. That’s why we put your money to work in stock markets and other asset classes, including fixed income, namely government and corporate bonds.

Over the short term, stock markets will rise and fall in response to each day’s trading. Over the long term, your pension is designed for decades of investment ups and downs, not for this week’s news headlines.

Taking the long view, there is one hard truth about investing: nobody knows when stock markets will rise or fall, but investing over the long term can help to navigate ups and downs in markets.

With investing, the simple fact is that past performance is never a guide to the future and your money is at risk. So, you could get back less than you put in.

Your pension money and investment cycles

Below we show the UK's FTSE 100 stock market index from 1990 to the end of April 2023. Often called the ‘Footsie®’, it’s the one you see and hear mentioned on the radio and television and read about in newspapers and on the internet. It measures the latest value of the UK’s largest 100 companies (based on their current value), moving up and down from minute to minute, hour to hour on days when people buy and sell shares. Many of these Footsie® companies are household names, such as Unilever and Tesco.

The first thing you’ll notice about the FTSE® 100 graph is the shape: it resembles a mountain range with peaks and deep valleys. Steep ravines follow several of the peaks, and then from the valley floor the FTSE® 100 rises to hit new highs. We call these ‘investment cycles’ and they can be influenced by many different things including good – and bad news – about specific companies; changes in the value of the British pound and other currencies, as well as political uncertainty and unexpected events like the Coronavirus crisis, and Russia’s invasion of Ukraine.

Business professional commuter checking their stock value on their phone, in an outdoor setting

Do people like it when the value of their stake in a company is suddenly smaller than it was the day before?

It’s unlikely, but it’s all part of investing and this is simply what markets do. The shape you see here is the type of path your pension money takes as it crosses this mountain range from month to month and from year to year as you travel through your journey towards retirement.

If you look closely at the graph, you can see several occasions when the market has fallen and then recovered. But nobody knows exactly when this will happen, and if you had that information in advance, you wouldn’t be reading this right now.

One of the advantages of investing in one of these dips is that shares are cheaper than at the peaks. If a company is a successful business and represents good value, this could represent an attractive opportunity for investors and especially stock pickers. In this situation, you simply get more shares for your money than when share prices are higher.

Chart showing the performance of the FTSE 100 Index from 1990 to the end of April 2023

Past performance is not a guide to the future.

FTSE share performance since 1990 - sourced by the London Stock Exchange
Source: London Stock Exchange Group, 2 August 2022

Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2022. FTSE Russell is a trading name of certain of the LSE Group companies. “FTSE®” “Russell®”, “FTSE Russell®”, “MTS®”, “FTSE4Good®”, “ICB®”, “Mergent®, The Yield Book®,” are trademarks of the relevant LSE Group companies and are used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

A reminder about how we manage your money


Your money is invested in collective investment funds and managed on behalf of Aviva by regulated investment professionals, which the analysts in our in-house governance team have carefully chosen.

Investing always carries a degree of risk and it’s impossible to predict and control falls in stock and bond markets. That would be like trying to change the weather and it’s why we have controls in place and only make funds available to you that are managed by investment professionals according to FCA (Financial Conduct Authority) regulations. The analysts in our governance team then review these funds on an ongoing basis.

Our funds can help diversify your pension savings

Basically, we provide a choice of funds - self-select funds - that invest in different asset classes to help you avoid putting all your eggs in one basket. The *default fund, which will be offered by a pension scheme, will also invest in different asset classes, including company shares and bonds, to provide diversification. As mentioned above, we invest your money in what are known as collective investment funds. As the name suggests, your money is pooled with that of other pension scheme members and the professional fund managers, who look after the funds, will use it to buy investments such as company shares, bonds and commercial property.

We also offer funds that invest in fixed interest assets. Here’s why

There’s more to investing your pension money than just investing in company shares. We also invest in fixed interest assets, which tend to be less risky than shares, although they can also rise and fall in value. Fixed interest assets include government and corporate bonds. These are loans issued by the government or a company in the financial markets to boost their finances. Government and corporate bonds pay the holder of the bond regular fixed interest and the full value of the bond when it matures.

Government bonds

Government bonds issued by the UK government are referred to as ‘gilts’. If a government or company defaults on the loan, then the interest will not be paid. Gilts are regarded as less risky than equities and corporate bonds as the UK government has never defaulted on the money it has borrowed. However, that does not mean they are without risk. Government bonds carry interest rate risk which means that they lose value when interest rates go up as we saw in 2022 and have seen so far in 2023.

Long-term investment

Pensions are a long-term investment and throughout this journey there will be ups and downs along the way. This applies whether you select the funds you want to be invested in, or you are invested in a default investment solution* for the entirety of your retirement journey. As we’ve explained, ups and downs in the markets are part and parcel of investing.

For us, taking a long-term view is essential, and this applies whether you choose to invest in our self-select funds or are invested in the default investment solution. Our pension investment funds provide a wide range of different assets to help manage risk. Investing in diverse assets in different industries in various countries can help provide stability in times of market stress.

*Please note that default investment solutions (where money is automatically invested in funds designed to manage risk throughout the retirement journey on behalf of customers) are only available to those investing in a workplace pension via their employer.