What are the implications if I switch my pension savings into ‘cash’ or lower risk investments?

It’s important to weigh up the facts before switching your pension savings into a ‘cash-type’ fund, often referred to as a ‘money market’ fund. While this can feel like it’s giving you more security when markets have fallen, you won’t benefit from any future increases in value from your current investments. This means you won’t have the chance to regain some or, potentially, all your losses.

Selling your investments now would mean selling them for far less than they were worth a month or two ago. Would you rush to sell your house if you didn’t absolutely need to, if there was a slump in house prices? Probably not – so why behave differently with your pension? Your pension is a long-term investment so, if you don’t need the money now, history suggests markets will improve over time.

Plus, if your pension savings are in a ‘cash-type’ (money market) fund, the value is unlikely to grow with inflation, which means your money won’t go as far in the future. Or, put another way, your money is unlikely to keep up with the cost of living.

What about lower risk investments?

If you want to take less risk with your pension savings, you have the option to switch to lower risk investments. These generally have less growth potential over the longer term, so how much time you have before you need to start accessing your pension savings is a very important factor in your decision.

If you were to switch to lower risk investments now, you’d first need to sell your existing funds at their current value. This could mean that you’d miss out on your original investments increasing in value if, as expected over the longer term, markets recover.

Some pension investment options automatically transition into lower risk investments in the run-up to your retirement date – at Standard Life, we call these lifestyle profiles. So if your pension savings are invested in a lifestyle profile, and you’re within a few years of your selected retirement date, you may find that they’ve been cushioned from the extremities of market falls as a result of having been moved into lower risk investments.

To check where your pension savings are invested and how much risk you’re taking, log in to our online service or download our app. In the ‘Investments’ section, you’ll be able to see where you’re invested and view the fund factsheet. You can also use our independent risk questionnaire to see how much risk you’re comfortable taking.

Past performance is not a guide to future performance.

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