Market mayhem continues with another £2trillion wiped off shares as experts warn it’s ‘not a good time’ for UK workers whose pension pots have been hammered
Millions of UK workers have seen thousands slashed from the value of their pension pots as stock market turmoil triggered by Donald Trump tariff war deepened.
Shares plunged for a second straight day as the President slapping stinging taxes on all US imports risked pushing the world to the brink of an all-out trade war. The UK’s FTSE 100 suffered a dramatic fall, crashing more than 300 points by lunchtime.
The escalating drama continued to send shockwaves through financial markets, which were a sea of red again amid a frantic sell-off. Another £2.2trillion was wiped off global markets, on top of the same amount on Thursday, the day after President Trump dropped his tariff bombshell. In the US, the S&P 500 tumbled another 2.4% as it opened as the rout continued.
While the longer term impact of the dispute is unclear, it is already having an impact on ordinary people through hitting the value of their pension pots. Around 30 million UK workers pay into a defined contribution pension scheme, some of which is invested in stock and shares, including those in the US.
Independent pensions expert John Ralfe explained: “The US represents something like 75% of the world’s stock markets – that is a function of the size of its economy. The default options vary from one pension provider to another but they will be disproportionately weighed towards the US. It means the US stock market is much more important to UK defined contribution pension schemes than you might think.”
Myron Jobson, senior personal finance analyst at Interactive Investor, summed it up as “not a good time, unfortunately.”
Global stock markets have shed around 10% of their value since President Trump took office in mid-February. For a UK worker with a £35,000 pension pot, that means around £3,500 knocked off the value of their retirement fund. In reality, not all their fund will be invested in stock and shares, but experts say it gives an indication of the impact. They also point out that the value of workers’ pension has time to recover, if they are some way off giving up work.
Steven Cameron, pensions director at financial giant Aegon, said: “It depends how old a person is and whether they are planning to take any money out of their pension any time soon. For the vast majority of people who won’t be touching their pension anytime soon, there will always be events which will make the underlying value of your investment go up and down. When it becomes more concerning is if you were thinking of retiring soon”.
Those who have begun drawing down their private pension may also have seen the value of their pot shrink, although they are much less likely to be exposed as they tend to have a smaller chunk invested in stocks and shares at this stage.
Those people could be planning to take up to a quarter of the pension as a tax-free lump sum. “If you are taking it out now it is at the worst time,” said Mr Cameron. “For people in that situation it will be concerning” as suggested they held off, if possible.
The FTSE 100 crashed to the lowest level since December and saw more than £80billion slashed from the value of those companies on the index, which tend to be internationally focused.
Russ Mould, investment director at AJ Bell, said: “With markets having suffered their worst week in five years, investors were hiding under their duvet on Friday hoping the pain would go away. Unfortunately, the relentless selling continued, with markets falling across Asia and Europe and futures prices implying the US will do the same when trading begins later on. There are so many moving parts that getting your head around the situation isn’t easy. With countless sectors set to be hit by tariffs, it’s difficult to know where to begin to comprehend the situation.
“Investors looking to buy on the dip were spoiled for choice given the sharp declines seen on the market this week. “It’s now a question of when investors feel brave enough to go shopping.”
