Pensions, like any other kind of saving which includes investment, can be subject to the unpredictability of the investment markets. This can be particularly apparent for ‘defined contribution’ personal pensions and self-invested personal pensions (SIPPs), where investments are selected by the individual, rather than final salary (defined benefit) pensions which are invested by the pension scheme investment managers.

When markets are tumbling, coming out of the market by stopping pension payments may seem like a good tactic, as we don’t want to see the money, we are paying in make immediate losses.

Pension payments can also suffer when times get hard, because as long-term policies, it can seem easier to reduce our pension contributions, or even stop them altogether, as a temporary measure with a view to restarting them in the future. There are a number of sound reasons why you should continue to pay into your pension during periods of market volatility or when times get tough.

First, human nature being what it is, restarting our investments can be a lot harder than stopping them. Spending money can be much easier than saving it. That’s simple behavioural science.

Since pensions are long-term investments – we cannot access our pensions until age 55 (at present), they are designed to benefit from many years of investment accumulation, with each year’s performance gains being invested in subsequent years, helping to build our wealth faster.

Pensions also benefit from tax relief from the government at the investor’s marginal rate of tax. For example, a standard rate tax payer paying £80 into their pension will receive a £20 uplift on their contributions. Higher rate taxpayers will benefit from their higher marginal rate. This relief is important in helping to build wealth within a pension year on year.

Then there are investment maxims to consider. Investing when markets are down means you are buying more units for the same money because the price is lower. When the markets recover you will then have more units in the market to benefit from the rise. By reducing or stopping payments you lose this opportunity to create greater wealth for your future. Continuing to contribute to your pension throughout the hard times also means your fund can recover more quickly from the market downturn.

As you can see, this can really benefit your long-term savings strategy. And, because pensions may be passed on to beneficiaries with substantial tax benefits, pensions also feature in estate planning.

Of course, for short-term financial reasons, it may not be possible to continue paying into your pension at the same rate but please consider the above and talk to Lowes before you take any action, as we may be able to find alternative strategies for your personal situation.

Get in touch by calling 0191 281 8811, emailing enquiry@lowes.co.uk or by filling in the form below.

Please note: The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.