The advent of a new era of stock market volatility will be a big test for the government’s much-vaunted pension freedoms, and for all those now running DIY pensions especially with smaller pots, experts have said.

As markets gyrated this week following the ‘black swan’ Brexit vote, Steve Lowe, group communications director at Just Retirement, said the volatile markets are a reminder for the new generation accessing income drawdown not to risk pension cash they can’t afford to lose.

He said the aftermath of the referendum served as a “stress test” of the financial planning of many who had used pension freedom rules to stay invested via drawdown plans.

Mr Lowe said: “Drawdown is now seen on offer to mass market customers with modest pension funds rather than being just for wealthier people who can ride out financial storms.

“In recent days drawdown investors have been warned to think twice before taking pension money. That is not much help for the many who are relying on taking that money to pay the bills and put food on the table.

“Anyone feeling anxious about what is happening now should consider if they are putting at risk money they are relying on to underpin their living standards later.”

Alistair Wilson at Zurich UK Life said: “Plunging stock markets could have costly consequences for pensioners in drawdown. By taking income from their retirement pots when markets are falling, investors will crystallise their losses, thereby shrinking the size of their retirement fund and limiting its growth when markets bounce back.”

Mr Wilson, head of retail platform strategy at Zurich, said: “Pensioners can take steps to protect their pots during periods of market turmoil. Drawdown investors should remember they can turn off the income taps whenever they like.

"Those that can afford to should limit their withdrawals, or stop them altogether, until markets have recovered. Staying invested for the long-term, switching withdrawals to other assets such as cash, and maintaining a well-balanced and diversified portfolio will also help investors ride out the Brexit storm.”

The two days of market carnage followed by a sharp rebound served as a reminder that selling funds after markets have fallen means shrinking your fund and reducing its potential for future growth. One defence is to limit the level of withdrawal to the ‘natural’ income from share dividends or bonds. That keeps the underlying investment intact, giving it a better chance to recover when markets rise.

Mr Wilson added: “Building up a cash buffer is the best defence against falling stock markets – and now is the time to break into it. Holding one to two year’s cash in your pension means you won’t be forced to sell when prices are falling. Instead of cashing in funds, pensioners should consider dipping into their cash reserves, giving their pot a chance to gain lost ground.”

Richard Parkin, head of pensions at Fidelity International commented: “If you are looking to convert your savings to guaranteed income by buying an annuity then it’s more important than ever that you shop around for the best deal. Annuity rates are based on long term interest rates which are already low and could be adversely affected by market uncertainty.” The rates on offer from Just Retirement fell by around two per cent early this week.

All DIY investors managing their own portfolios have had a wake-up call from the 'black swan' event.

Patrick Connolly, certified financial planner at IFAs Chase de Vere, commented: “Nobody can predict how stock markets will perform in the fallout to the EU referendum result. It is therefore important that investors don’t try to be too clever.

"Having too much money in the stock market could have a significant negative effect on your overall finances if we see further falls, you should therefore spread your money across different assets such as shares, fixed interest, commercial property and cash, so you can benefit from long-term stock market growth but also provide some protection for your portfolio.”

Mr Connolly said when stocks were tumbling dramatically it was important to stay calm and rational.

“Too many people make investment decisions based on short-term performance or sentiment….if your investment strategy was right for you before this recent bout of market volatility it is probably still right for you today.”

For brave investors, market falls were an opportunity to pick up apparent bargains. “However, don’t buy just because the price is cheap and make sure you consider any new purchases in the context of your overall portfolio other you could end up taking too much risk."

He added: “Investing regular premiums rather than lump sums is a sensible way to invest during difficult economic times or periods of stock market volatility.

" This approach negates the risk of market timing and means that if investments fall in value then units are simply bought cheaper next time, bringing down your average purchase cost.”