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Should market turmoil change how you invest a DC pension?

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UKPublished 6 October 2026 · Written by BuyMeWhiskey Editorial Team · How we check facts

Market turmoil can be a reason to review a defined contribution pension, but it is not a reason by itself to abandon a long-term investment plan. Check your time horizon, diversification, charges and retirement income needs before changing investments because of headlines.

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A DC pension is an investment account with a retirement job

In a defined contribution pension, the amount you eventually have depends on contributions, investment performance and charges. MoneyHelper explains that the money normally remains invested while you are building the pot, so its value can rise or fall.

That means market falls are not automatically evidence that your pension is “broken”. They are part of investment risk. The more useful question is whether the level and type of risk still fit the date when you expect to use the money.

The closer retirement gets, the more the plan matters

MoneyHelper says many default pension funds move toward lower-risk investments as the member approaches the scheme's normal pension age. That can make sense when the plan assumes you will soon cash in the pot or buy an annuity.

But the right mix can be different if you expect to use drawdown for many years. MoneyHelper warns that leaving a pension in a default fund without checking its design can mean missing out on growth if the fund has already shifted heavily toward lower-risk assets.

Drawdown changes the problem

When a DC pension is moved into flexi-access drawdown, the remaining money stays invested while you take income. MoneyHelper says your retirement income is therefore not guaranteed and the pot can rise or fall after you retire.

This creates sequence-of-returns risk. Selling units after a big fall can leave fewer units available to participate when markets recover. The same withdrawal can therefore have a larger long-term effect if it happens early in retirement.

Can you choose a pension fund that avoids AI?

There is no general rule that a DC pension must invest in companies connected with artificial intelligence. MoneyHelper says people with DC pensions can often choose from a range of funds, including ethical or sustainable options and specialist funds, although the range depends on the provider.

However, “no AI” is not usually a standard fund category. A fund may exclude certain sectors while still owning a diversified market fund containing companies that use or supply AI-related technology. Read the fund's actual holdings, objective and exclusions rather than relying on a label.

Diversification matters more than predicting the next theme

A pension can be exposed to several risks at once: company risk, sector risk, geographic risk, interest-rate risk and currency risk. A concentrated technology-heavy portfolio can behave very differently from a diversified multi-asset fund.

MoneyHelper notes that pension providers often use diversified portfolios to spread risk. If you choose your own funds, check how the holdings overlap. Three funds can still leave you heavily exposed to the same companies.

Important 2026/27 pension figures

For the 2026/27 tax year, the standard pension annual allowance is £60,000, although high earners and people who have flexibly accessed a DC pension can have a lower allowance. HMRC's published 2026/27 figures give a £10,000 money purchase annual allowance for the relevant cases.

The standard lump sum allowance is £268,275 for most people. The normal minimum pension age remains 55 in 2026/27 and is scheduled to rise to 57 from 6 April 2028, subject to the rules around protected pension ages and exceptions.

Do not make the pension decision without deciding how you will take it

The investment strategy that makes sense for a pension you will fully cash out in a short period can be different from the strategy for a pension you will leave invested through drawdown. MoneyHelper lists drawdown, annuities and lump-sum approaches as different ways a DC pension can be used.

This is why a headline about a market fall should prompt a review of your retirement method, not just a switch from shares to cash. The fund has to be judged against the plan for the withdrawals.

A sensible review checklist

Check the fund names and asset mix you actually hold.
Check whether the default fund is designed for taking benefits at a particular age.
Check charges and whether cheaper options provide the same diversification.
Check whether your intended retirement date has changed.
Check how much cash you expect to need in the early retirement years.
Check whether your risk tolerance has changed because of a real life change, not just a headline.

MoneyHelper recommends reviewing investment choices at least once a year. A review is a process; it does not have to end in a trade.

The lasting answer

Market turmoil can expose a flaw that was already present, such as excessive concentration or a fund designed for a retirement date you no longer expect to use. That is a good reason to review a DC pension.

What is usually weaker is changing the pension simply because markets are frightening today. The better decision is the one that still makes sense if the market rises next month, falls again next year, or stays volatile for several years.

Illustrative DC pension after a 20% fall in growth assets

Worked example

Illustrative pension example: imagine a DC pension worth £200,000. The member's current allocation is 60% growth assets and 40% lower-risk assets. If the growth portion falls by 20% and the lower-risk portion is unchanged, the illustration works as follows: This is an illustration, not a forecast of pension-market returns or a recommended withdrawal strategy.

Growth allocation: £200,000 × 60% = £120,000.
Illustrative fall: £120,000 × 20% = £24,000.
Portfolio after the move: £200,000 − £24,000 = £176,000.

If the same person later takes 25% of the original £200,000 pot as a tax-free lump sum, that is £200,000 × 25% = £50,000, leaving £150,000 invested before any market movement. Those figures are illustrative; the actual tax-free amount is subject to the individual's lump-sum allowances and pension arrangements. This is an illustration, not a forecast of pension-market returns or a recommended withdrawal strategy.

Will a stock-market crash reduce my defined contribution pension?#

It can. A DC pension is invested, so its value can fall when the investments fall. The effect depends on what the pension holds. A diversified portfolio may behave differently from a concentrated one, and the impact also depends on how soon you need to start taking the money.

Are there pensions that do not invest in AI?#

You can often choose funds with particular sector exclusions or ethical and sustainable objectives, but “no AI” is not a standard guarantee. Check the fund's objective and holdings. A broadly diversified fund can own companies involved with AI even if it is not marketed as an AI fund.

Should I move my pension to cash during market turmoil?#

Not automatically. A move to cash may reduce short-term investment volatility, but it can also change your long-term growth potential and may not fit your planned retirement method. Review the allocation, time horizon and withdrawal plan before making a large change.

What is the 2026/27 pension annual allowance?#

The standard annual allowance is £60,000 for 2026/27. The allowance can be lower for some high earners and for people who have flexibly accessed a defined contribution pension. HMRC and MoneyHelper provide the current rules and calculations for those cases.

What is the normal minimum pension age in 2026/27?#

For most registered pension schemes it is currently 55. HMRC says it is scheduled to rise to 57 from 6 April 2028, with protected pension-age rules and certain exceptions. Your scheme can also have its own rules about when benefits can be taken.

Can I take 25% of my DC pension tax-free?#

You can usually take up to 25% as tax-free cash, subject to the lump sum allowance and your individual circumstances. The standard lump sum allowance is £268,275 for most people in 2026/27. Taking more cash upfront leaves less invested to provide future income.

Why does my pension fund become more conservative near retirement?#

Many default funds are designed for a member who expects to take benefits around a particular date. As that date approaches, the provider may move money toward lower-risk assets. That can be suitable for one retirement method but less suitable for long-term drawdown, so check the fund design.

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Sources

Figures were checked against these sources before publication. If a rule changes, we update the page and show the new date.

General information, not personal financial advice. Rules depend on your circumstances; check the official source or speak to a regulated adviser before acting.