The UK’s FTSE 100 has plunged to a one-year low as fears deepen over the global impact of Donald Trump’s tariffs.
The FTSE, a stock market index of the 100 biggest UK companies, fell at the end of last week, and dropped another 5 per cent on Monday morning.
Other stock markets have also fared badly. Germany’s Dax index recorded a drop of about 6.5 per cent, and France’s Cac 4 was down around 5.3 per cent in the morning, while Taiwan’s stock market closed down 9.7 per cent.
The bad news comes after the US President said he will not back down on his sweeping tariffs unless countries even out their trade with the US.
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President Trump announced that import taxes would be placed on goods coming from scores of countries last Wednesday.
A 25 per cent tariff is now applied to foreign cars imported into the US, while other products from the UK face a 10 per cent levy.
Theses extra taxes can damage a company’s profits and raise prices for consumers. They have also led to retaliatory tariffs from other nations, and the knock-on effect has been a gloomy economic picture.
Here’s what the changes mean for your savings and pension.
If you have money squirreled away in either a savings account or cash ISA – a cash savings account where the interest is free from tax – then you are not in danger of losing money from the stock market tumble.
When you open a cash savings account, you are paid an interest rate.
Some accounts offer interest that is fixed for a set period of time, with these accounts sometimes known as bonds.
Other accounts offer interest that can drop or go up – these are generally known as easy-access accounts.
Unlike with investing though, you can’t lose money, as long as your money is with a UK-regulated financial institution that has Financial Services Compensation Scheme (FSCS) protection.
If the provider you are saving with has this, the FSCS protects 100 per cent of the first £85,000 you have saved, per UK-regulated financial institution, even in the exceptionally unlikely event the provider goes bust.
Money in a stocks and shares ISA or investment account? You may be losing money
Unlike savings in cash, invested money can go up or down depending on where it is invested.
At the moment, many investors with money in stocks and shares will be finding the value of their investments is dropping.
A way to protect against this is to have well-diversified investments, but given the stock market tumbles at the moment are being seen on a global scale, it can be hard to avoid.
However, experts have warned that withdrawing your money can be a bad idea in these circumstances.
Dan Coatsworth, investment analyst at AJ Bell, said: “One of the worst things people can do in the face of a market correction is panic and sell investments. Time in the market is more important that timing the market.
“History shows that markets often experience sharp pullbacks and then bounce back. While we don’t know when a recovery will happen, staying invested throughout has often proved to be the best strategy.”
Pensioners and those saving for pensions can also be among those hit by the stock market slide.
State pensions are unaffected by the change. Pensioners currently get £230.25 per week if they get the full new state pension and this will continue regardless of the stock market issues.
Every year the state pension goes up by the highest of 2.5 per cent, inflation or average earnings growth, so if the stock market slide impacts average earnings or inflation, then it could influence next April’s increase in the state pension.
Some pensioners with defined benefit (DB) pensions will also be unaffected by the changes in the stock market.
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Read MoreThese pensions provides a guaranteed lifetime income based on your salary and years of service and are common in the public sector but not in the private sector. They are typically protected from inflationary rises as well.
But most pensioner savers with money in defined contribution (DC) pensions, will be affected.
These pensioners save a portion of their salary every month into a pot which is invested for their retirement.
When the stock market dips, the value of their pension can go down.
But experts say those that are decades away from taking their pension should not worry.
Helen Morrissey of Hargreaves Lansdown said: “We will all experience periods of stock market turbulence during our pension saving journey.”
But she said those close to retirement may want to delay taking their pension if their pot has been affected by the dip in the stock market.
“If you are coming up to retirement then you may choose to put off taking an income from your pension until the situation is more settled,” she said.
Pensioners who have DC pots but have bough annuities – set annual incomes that can be purchased in exchange for cash – will be unaffected by the stock market slide, but if the tariffs send inflation in the UK higher, it will damage the real-terms value of their savings, unless they have bought an annuity which protects against inflation.
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