Market Volatility And It’s Impact On Your Pension & Retirement

What’s going on with the markets and how does it affect your pension and retirement savings?

Pensions are critical to providing income security after you retire, providing you with financial stability during your retirement years. Unfortunately, many people are not aware of the fluctuating nature of pensions, which can impact your retirement planning.

In this article, we discuss the reasons behind the fluctuation of pension and retirement funds and how you can ensure a stable retirement income. We hope that this article will help give you a better understanding of your pension and retirement income and allow you to make informed decisions in managing it.

What Causes Market Volatility?

There are several reasons behind the fluctuation of pension fund values and your retirement investments.

First of all, when we talk pension funds and retirement investments, we are referring to managed money, NOT a company or government pension plan. When you retire, you may have the opportunity to move the commuted value of your pension into a managed account like a LIRA or RRSP. This article talks to these portfolios.

For the record, when you contribute to a pension, that money is largely invested in the stock markets. However, if your plan is a Defined Benefit [DB] plan, you don’t worry about stock market returns since the plan has promised you a specific money income at retirement. On the other hand, if your plan is a Defined Contribution [DC] plan, you definitely are invested in the stock markets.

1. Changes in the stock market

The stock market is one of the most important drivers of pension values. Swings in the financial markets can affect pension funds who have invested in stocks. When the stock market goes up, so does the value of pensions (assuming that your pension plan invests in stocks). Similarly, when the stock market goes down, the value of pensions also goes down. This is because most retirement plans invest your money in stocks, bonds, and other financial assets.

2. Inflation

Inflation is another factor that can result in a fluctuation of pension fund values. This is because inflation causes prices to rise, which means that your investment return may not be enough to keep pace with inflation over time. Without taking this into account, your savings may not be enough to support your standard of living in retirement. Inflation also affects the value of money, which means that a dollar today is worth less than a dollar in the future.

3. Changes in interest rates

Interest rates can also have an impact on your pension value. This is because when interest rates go up, the value of bonds goes down. And since many pensions invest in bonds, this can lead to a decrease in the value of your pension. On the other hand, when interest rates go down, the value of bonds goes up, which can increase the value of your pension. Clear as mud? Set up a Zoom call with us.

4. Challenging business environment

If the global business environment around the world becomes more challenging, especially with economic uncertainty and rising costs, it can be difficult for companies to maintain their level of profits and the amount of dividends they pay out to investors (including pension funds who have invested in them). Situations such as a…

  • Labor shortage
  • Increase in business costs
  • Decrease in consumer demand
  • Energy price hike
  • Inflation
  • Tight money supply
  • Decrease in housing starts

All of these factors can lead to a decrease in company profits. Since your pension fund may be invested in these companies, this can lead to a decrease in the value of your pension.

5. Fewer contributions from current and future employees

Even if your company is doing well in the present, changes may happen in the future that could result in fewer contributions. For example, there is a chance that the company you’re working for gets acquired by another company down the road. In this case, your new employer may stop making contributions to your pension or change it’s policy towards matching your contributions (if your company has a contribution matching program), which can negatively affect your balance.

6. Poor investment choices

If you have a defined-benefit [DB] pension, your pension fund can be affected by the investment choices that your employer makes.

For example, if your pension fund invests in a high-risk stock, there is a chance that your pension fund could lose a significant portion of it’s value. On the other hand, if your pension fund money is invested in a low-risk option, such as a government bond, the value of your pension fund may not see as much growth. Think back to Enron. Their pension invested 100% in Enron shares. Everything was lost.

This is one of the biggest risks with a defined-benefit plan run by your employer! Returns on their investment choices might rise or fall, and it’s up to your employer to make sure that the pension fund is able to cover your defined-benefit amount when you retire.

Is your company in a stable industry? Is your company financially strong? Do you foresee your company potentially going bankrupt in the next 10, 20, or 30+ years? Think forward to your 80th birthday.

Remember the department store Sears? Their Canadian pension fund for retired employees was short $133 million, according to court documents, and 18,000 retirees had their pensions cut by 20 per cent after the retailer folded and left behind an underfunded pension plan. You can minimize this risk by moving your defined-benefit pension plan to a secure financial institution via a copy-cat annuity.

Remember: You have 3 choices when you leave your job. You can leave your pension with your employer, take the commuted value cash, or take your pension elsewhere. Yes, you can take your pension elsewhere such as an insurance company (Canada Life, Sun Life, etc).

Let us explain these three options with you so you know exactly what choices you have upon retirement. Book a call with us to discuss this option.

Should You Be Worried About Market Fluctuations Impacting Your Pension Fund?

Your employer’s pension plan is usually managed by a fund manager who will make sure to minimize risk and exposure to volatility in the markets.

Do your research into how your company pension funds manages liquidity risk in a crisis (how they meet increased demands for cash and collateral). Liquidity risk has increased over time, as funds invest in illiquid assets or use leverage or derivatives.

Companies have increasingly moved towards defined-contribution pension plans, which has the advantage of giving you more control over how your pension funds are invested.


In conclusion, if you’re contributing to a company pension plan, you are likely in good hands and don’t need to worry about market volatility since your pension fund manager will be handling this for you. However, it is a good idea to make sure to stay informed, diversify your investments, and plan for unexpected expenses. With these strategies, you can help ensure that your retirement savings will be sufficient to support yourself during retirement.

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