Shockwaves were sent through the global economy after President Donald Trump announced sweeping new tariffs on imports into the US last week.
Taxes on goods imported from 60 countries he described as the “worst offenders” took effect on 9 April.
However, Trump later announced that the higher rates for some countries would be paused for 90 days, with a blanket 10 per cent tariff to apply in the meantime.
His surprise decision brought relief for battered stock markets, even as he ratcheted up a trade war with China – raising tariffs on Chinese products to 125 per cent.
One of the main concerns over the changes is what it means for people’s money – especially for their pension.
We spoke to the experts to find out what impact it could have on your retirement fund – and what you should do.
State pensions being paid out now are unaffected by the drop. Pensioners currently get £230.25 per week if they receive the full new state pension, and this will continue regardless of the stock market volatility.
But every year, under the triple lock, the state pension goes up by the highest out of inflation, average earnings growth, or 2.5 per cent – so if the stock-market slide hits average earnings or inflation, it could influence next April’s increase in the state pension.
However, this will depend on the state of the markets further down the line.
What about defined benefit (DB) pensions?
Those with DB pensions – also known as final salary pensions – will also be largely unaffected by the changes in the stock market.
These pensions provide a guaranteed lifetime income based on your salary and years of service and are common in the public sector but not in the private sector. They are typically protected from inflationary rises as well.
DC pensions are the most common type, where pensioners save a portion of their salary every month into a pot which is invested for their retirement. When the stock market dips, the value of their pension can go down.
While markets have staged a partial recovery following the recent tariff pause announcement, it would be premature to assume the volatility is at an end, Ian Futcher, financial planner at Quilter, said.
He explained: “Pension pots, which are often heavily invested in equities and bonds, remain exposed to global market movements, and further swings in sentiment are highly possible.
“Those nearing retirement may see their pension values fluctuate more than expected and should consider whether their portfolios reflect an appropriate level of risk given the uncertainty.”
Annuity rates may also take a hit
Annuity rates, which are tied closely to long-term gilt yields, may also face downward pressure if rate cuts are used to cushion the economic impact of tariffs, Futcher said.
Financial traders have been expecting more interest rate cuts this year after Trump unveiled his reciprocal tariffs.
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Any cuts would be a boost for the Government’s promise to raise living standards, which has been under threat due to the recent economic turmoil.
Until recently, the expectation has widely been that the Bank of England would cut interest rates in 0.25 percentage point increments.
But some economists are now arguing that rates should be slashed by double the amount next month to limit damage to the economy.
This week, ex-deputy governor at the Bank, Sir Charles Bean, said rates could be cut by 0.50 percentage points at the next meeting in May, with other economists saying the case for this is increasing.
Futcher said: “For those considering converting pension savings into a guaranteed income, timing will be key.
“As ever, professional financial advice can help ensure retirement plans remain on track, even as the external environment shifts.”
Although it may be tempting, Gary Smith, financial planning partner and retirement specialist at Evelyn Partners, said now is not the time for pension savers to be changing their investment strategy by switching or selling funds.
He said: “It’s a bad idea for most people to ‘trade’ their pension investments at the best of times – but during periods of extreme volatility and massive uncertainty like this, it’s probably going to an act of pension ‘self-harm’.
“Pensions are a long-term saving and investment project, which does need revising gradually as the years go by, for instance to take some risk off the table as you approach the point where you might need to start accessing your savings.
“People shouldn’t chop and change in reaction to shocks – but it could be a good reminder of how tolerant they are of such volatility and that market reversals do occur, so be prepared when you get within five years or so of wanting to access pension assets.”
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Read MoreSir Steve Webb, former pensions minister and partner at LCP, pointed out that trying to “time the markets” can be extremely challenging, even for expert investors.
He said: “Someone who cashed out their holdings of shares after several days of sharp falls would have missed out on the latest bounce back, but the situation remains very volatile and unpredictable.
“This is a reminder of the virtues of investing for the long-term and of diversifying across a range of assets and markets, and of the risks of knee-jerk reactions to short-term market swings”.
Tom Selby, director of public policy at AJ Bell, said: “While the circumstances are not normal, volatility has always been part and parcel of long-term investing.
“Just as the dips in value of funds off the back of the tariff announcement didn’t spell retirement disaster for the vast majority, the bounce back we have seen as a result of the tariff pause doesn’t amount to pensions ecstasy.
“Pension savers are usually looking to get returns over decades, so fluctuations over the space of a week can normally be ridden out without any fuss.”
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