You open your pension app over breakfast and the number has dropped by a sum that would buy a decent second-hand car. The radio is talking about billions wiped off the FTSE. A colleague says he has moved everything into cash. Suddenly you’re wondering whether you should too.
If you’re between 45 and 64, you’ve been here before. Black Monday in 1987, sterling crashing out of the ERM in 1992, the dotcom bust, the 2008 banking crisis, the Covid crash in 2020 and the 2022 mini-budget gilt chaos. The useful question is not whether markets will fall again. It is what you do on the day they do.
Should I sell my investments when the stock market crashes?
A crash feels like the moment to do something. Usually it’s the moment to do very little.
When you sell after a big fall, you turn a paper loss into a real one. The money sitting in cash then has to be put back into the market at some point, and nobody rings a bell when it’s time. Some of the strongest days in market history have come within weeks of the worst ones. People who sold in March 2020 and waited for things to feel safe often bought back at higher prices.
The government-backed workplace scheme Nest makes the point to its members in plain terms. A pension is invested for decades and spread across many markets, so a fall in one place should be partly offset by others. A drop in value only becomes a loss if you sell.
None of this means markets always recover quickly. In price terms, ignoring dividends, the FTSE 100 took around 15 years to get back above its end-of-1999 peak. That’s why the next question matters more than any prediction.
When will I need this money?
How much a crash matters depends almost entirely on when you plan to spend the money.
If you’re 48 and paying into a workplace pension you can’t touch until 57, the earliest age for most people from 6 April 2028 (55 until then), a fall is a nuisance rather than a disaster. You’re still buying, and you’re now buying cheaply. Say you put £500 a month into a fund. At £5 a unit that buys 100 units. If a crash knocks the price to £4, the same £500 buys 125. When prices recover, those extra units are worth having. Keep paying in, especially where your employer is matching your contributions.
If you’re 62 and drawing an income from your pot, the maths is less forgiving. The jargon is sequence-of-returns risk: a big fall just as you start taking money out does lasting damage. Take a £400,000 pot paying you £20,000 a year, which is 5% of the pot. If it drops 25% to £300,000 and you keep taking £20,000, you’re now withdrawing nearly 6.7%. You’re selling more units at low prices, and those units won’t be there when the market recovers.
A crash only costs you money for certain if you sell at the bottom. Everything else is a paper loss and a test of nerve.
What can I do instead of panicking?
Doing nothing doesn’t have to mean sitting there feeling helpless. There are sensible things to do, and most of them are best done before the next crash.
Hold a cash buffer. Many people in drawdown keep one to two years of planned withdrawals in cash or very low-risk assets. When markets fall, you take income from the buffer and leave your investments alone to recover. Building that buffer after a crash means selling at low prices, so do it while things are calm.
Look at your mix of investments. A sharp fall shows you how much risk you really have. If a 20% drop leaves you unable to sleep, your portfolio may be riskier than your circumstances need, particularly if retirement is a few years away. Shifting gradually, after the dust settles, is very different from bailing out in a panic.
Rebalance rather than run. If you aimed for, say, 60% in shares and 40% in bonds and cash, a crash might leave you at 50/50. Rebalancing means topping shares back up, which is buying low by design rather than by bravery.
Use your tax wrappers. Shares held outside an ISA or pension can be liable for capital gains tax when you sell. The annual tax-free allowance has been £3,000 since the 2024/25 tax year. Some investors use a fall to sell holdings in a general account and buy them back inside an ISA, sometimes called Bed and ISA, so future recovery grows tax-free. The adult ISA allowance is £20,000 a year. The rules are the same across England, Scotland, Wales and Northern Ireland.
Check your app less often. Looking daily at an investment you won’t touch for ten years gives you plenty of stress and no useful information. Quarterly is plenty. Annually is respectable.
Is my money safe if a pension provider goes bust?
This is a different worry from a market fall, and people often confuse the two. A crash reduces what your investments are worth. It doesn’t make your pension provider or ISA platform vanish, and your assets are normally held separately from the firm’s own money.
If you have a defined benefit (final salary) pension, the market’s daily mood doesn’t change the income you’ve been promised. The scheme’s funding is the trustees’ problem, and the Pension Protection Fund sits behind most private-sector schemes if an employer fails.
Who can I talk to before making a big decision?
Crashes bring out two kinds of caller: the scammer offering a guaranteed escape route, and the friend with a strong opinion. Ignore both. Unsolicited contact about your pension is a red flag, full stop.
If you’re 50 or over with a defined contribution pension, Pension Wise from MoneyHelper offers a free, impartial appointment by phone or face to face. It covers your options for taking money out, how each is taxed and how to spot scams. It won’t tell you what to buy, but it will help you see the trade-offs clearly. MoneyHelper’s wider service is free at any age.
If you want a personal recommendation, for example whether to delay drawdown or change your investment mix, that is regulated financial advice. Use an adviser on the FCA register. Which? notes that pension advice can cost thousands, but some defined contribution schemes let you use the pension advice allowance to pay part of it from your pot.
In short
When the market crashes, selling in a panic is the one move most likely to turn a temporary fall into a permanent loss. If you’re still years from needing the money, keep paying in, because you’re buying cheaply. If you’re drawing an income, a cash buffer, a sensible mix of investments and smaller withdrawals in bad years matter far more than reacting to the headlines. Before any big change, use Pension Wise or an FCA-regulated adviser.
Sources
Midcent Money
Andrew Ingram writes about money for men 45 and over – the years when retirement starts to feel real and the decisions get bigger. Pensions and retirement planning, investing, savings, mortgages and tax: what changed, what it means for your plans and what's worth doing about it. No hype, nothing to sell, and a clear steer on when it pays to get personal advice.
One of Midcent's writers. Spotted something? Write to andrew@midcent.uk.
