The value of defined contribution (DC) pensions has dived £157bn over the past year, according to research from Aon Consulting.
Falling underlying asset values and a decline in pension contributions by cash-strapped workers are thought to be the major reasons for the decline.
Aon says the value of DC pensions stood at £522bn in October 2007, but has slumped by 28% to just £395bn over the past twelve months as the economy has entered a downturn.
Since the market turmoil at the beginning of September, more than £75bn has disappeared from the UK’s DC pension funds.
Aon’s research indicates workers paid in around £6.7bn in contributions in the twelve months to October 2008.
The rapid fall in global stock markets has severely affected the value of pensions, while contributions have also slowed as jobs are lost and employees struggle to keep up with rising costs.
However, Aon Consulting says time is on the side of most DC scheme members.
Helen Dowsey, principal in Aon’s benefit solutions division, says: “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.
“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.”
For those workers who are nearing retirement, professional advice should be sought to explore all the options available, including delaying retirement until equities markets improve.
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