Page last updated at 10:27 GMT, Monday, 27 October 2008

UK pension pot 'slashed in value'

Elderly couple
Experts are urging workers not to panic about their pensions

Billions of pounds have been wiped off the value of the UK's pension pot in the last year as shares have fallen, a pension consulting company says.

The value of employees' defined contribution pensions has dropped by nearly a third from 552bn to 395bn, according to research by Aon.

About four million people in the UK are in so-called "defined contribution" pensions provided by their employer.

An advice body says they are encouraged to take too many investment risks.

Defined contribution schemes are different from a final salary scheme, which guarantees a pension based on end-of-career earnings and length of service.

Under a defined contribution scheme, workers and their employers make contributions which are invested in shares and bonds, but the size of the final pension is not guaranteed as it depends on market performance.

Slashed

Research by Aon Consulting suggested that the value of defined contribution assets dropped by 28% to 395bn between October 2007 and October 2008.

Most workers will have the fortune of time on their side as their retirement will be many years away, enough time to weather the current storm
Helen Dowsey, Aon Consulting

During the same period, an estimated 6.7bn of contributions were paid into these schemes by employers and their staff.

"It may appear a double blow to workers that not only are they facing more of a struggle to make ends meet, but the economic turmoil is also seemingly eating into the money they have been putting aside for retirement," said Helen Dowsey, of Aon Consulting.

"However, most workers will have the fortune of time on their side as their retirement will be many years away, enough time to weather the current storm."

She said anyone approaching retirement might consider delaying, and she encouraged people nearing retirement to seek professional help when considering how to move around their investments.

The estimate is the first of its kind by Aon Consulting and was gleaned from a range of market information, research and data.

The government-funded Pensions Advisory Service warned earlier this month that millions of people were being encouraged to take too much risk with their pensions.

It said workers who paid into pension schemes which invested heavily in shares might not have been aware of the risks.



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