What risks come with investing my pension?
As with all investments, there are risks with pension investments.
It’s important to understand those risks, and how your pension provider (or you, if you invest your own savings) mitigates them.
That way, you can have confidence that your investments are in line with your goals, circumstances, and risk tolerance.
In this guide, discover the basics of pension investments, the risks involved, and what you or your provider can do about those risks.
The basics of investing your pension
Generally speaking, your pension savings will be invested on your behalf by your provider.
But some pensions involve you picking your own investments.
Pensions where the provider invests on your behalf
Most modern pensions are defined contribution schemes.
That means what you have at retirement’s determined by:
- your personal contributions (plus tax relief);
- employer contributions; and
- any investment returns.
Your provider will invest your savings for you if you have a defined contribution pension such as a:
While the provider will invest for you, you can typically choose a fund or pension plan. These vary in the investments they hold and how much risk you take on.
So, you still have some control over your pension investments’ risk profile.
Another type you may have is a defined benefit pension. These are less common now, but you might have one from a previous job or if you work in the public sector.
Defined benefit pensions pay a retirement income for the rest of your life, usually from a set age like 60 years old. How much you’ll receive depends on factors like how long you worked for your employer, your earnings, and a calculation called the ‘accrual rate’.
With all defined benefit pensions, the scheme invests your savings on your behalf and makes all investment decisions.
Pensions where you choose your own investments
Some types of defined contribution pensions allow you to choose your own investments.
That includes:
- Self-Invested Personal Pensions (SIPPs); and
- Small Self-Administered Schemes (SSASs).
With a SIPP or a SSAS, you have complete control over the pension investments. You’ll usually need to be a confident investor to use one of these schemes, as you’re fully responsible for investment performance.
You can also work with an Independent Financial Adviser (IFA) to help make these decisions.
Do I have to invest my pension?
As described above, most modern personal pension schemes will invest your money on your behalf.
You may be able to choose a lower-risk fund or plan. But even then, it’ll still likely be invested, if only in part.
That’s not necessarily the case for a SIPP or a SSAS. With these schemes, you could theoretically choose to only hold your savings in cash.
However, pensions are invested to try and grow your wealth for your future. That’s important because it increases your chances of building a pot to support you in later life when you’re no longer working.
It also makes it more likely that your savings will stay ahead of inflation - that’s how fast the cost of living’s rising.
Cash might grow your wealth thanks to the interest it receives. But this may not be enough to keep it ahead of or even in line with inflation.
As a result, although the amount of money you have may increase, it might lose value in real terms.
Meanwhile, invested wealth has typically outperformed both cash and inflation in the past.
That’s not guaranteed to keep happening in future. But it does make it important to think carefully before holding all your pension savings in cash.
Use PensionBee’s Inflation Calculator to see what inflation could mean for you and how far your savings could go in retirement, depending on how quickly prices increase.
Likewise, if you don’t want to invest your pension for religious reasons or on ethical grounds, there are options available.
For example, PensionBee offers a Shariah Plan for Shariah-compliant investing.
There’s also PensionBee’s Climate Plan. This plan excludes fossil fuel producers and aims to reduce exposure to carbon-intensive companies.
What are the risks of pension investments?
As with any investment, there’s a risk that you’ll get back less than you invest with a pension.
If you contribute shortly before a period of market volatility, you could see your balance fall.
This could be a result of economic factors outside your control. For example, conflict, geopolitical uncertainty, or government changes could all affect markets.
Events like this could impact your pension’s balance, even if only temporarily.
However, it’s worth remembering that pensions are generally invested for the long term. Over longer periods, markets have historically trended upwards.
It’s also important to note that investment risk isn’t the only type of risk. As mentioned above, inflation and the rising cost of living can decrease your money’s real-term value. That’s ‘inflation risk’.
This is just as key as investment risk. Not investing your pension savings could mean they don’t have the same spending power over time.
Saving in cash avoids the risk of your balance being affected by markets. However, it could lead you to have less in retirement than you expect or need if your money doesn’t keep up with inflation.
How to mitigate risks to my pension
Pension providers mitigate risk in various ways.
For example, you can’t usually access your pension before 55 (rising to 57 by 2028). The younger you are, the more time you have before retirement. That gives a longer investment time frame for riding out market volatility.
With this in mind, providers may put you in higher-risk plans earlier in your career.
For example, PensionBee’s default plan for under 50s is the Global Leaders Plan. This is a 100% equity (that’s stocks and shares) plan, meaning it has a higher risk/reward profile - that’s a measure of a pension fund’s investment risk.
Equities tend to move up and down more in value than other investments. But because you’ll have longer before retirement, you can generally afford the extra risk of your balance rising and falling over time.
As you get older, some schemes may de-risk your investments. They do this to provide more certainty over your savings’ value as you approach the point where you may access them (from 55, rising to 57 from 2028).
This may be automatic. Or your provider may get in touch to tell you about your options.
PensionBee’s default plan for those 50 and over is the 4Plus Plan. This actively-managed plan has a medium risk/reward profile, which could be more appropriate as you get closer to drawing your savings.
If you’re a PensionBee customer, you won’t automatically be moved you into this plan. But we’ll communicate with you as you approach 50 to let you know what to think about.
If you invest your own pension savings in a SIPP or SSAS, you’ll need to consider these things for yourself. You could follow the same strategy, holding more equities and moving into lower-risk investments later on.
However, this approach may not be appropriate for everyone.
Speak to an IFA if you’re unsure what to do.
How PensionBee invests your pension
PensionBee offers a range of pension plans.
You can stick with one of the default plans.
- Global Leaders Plan (under 50s)
- 4Plus Plan (50s and over)
Or choose one of the specialist plans.
Check the plan info pages for all the information you need. That includes what they invest in, their risk/reward profiles, and how much each one costs.
You can also switch between plans and we won’t charge you. Think carefully before doing so when markets are volatile.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. Past performance does not guarantee future results. This information should not be regarded as financial advice.
Last edited: 17-09-2026
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