UK pension funds lose £157 billion in the market meltdown

Mumbai: The financial market crisis has seen the value of employee-contributed  pensions in the UK plummet by as much as £157 billion over the past year, according to a study released by Aon Consulting.

The value of defined contribution pension assets, contributed by around 3.7 million workers and worth over £552 billion in October 2007, has dropped to around £395 billion by October 2008 – a decline of 28 per cent in one year.

This works out to a £46,417 loss for each of the 3.4 million workers who pay into such schemes, although amounts will vary according to contributions and investments made.

This means that those who are part of a defined contribution pensions scheme and are close to retirement may now have to work longer to recover the losses suffered in the market meltdown, Aon Consulting, one of the UK's biggest pension firms, aid in its report.

This brings to focus the real effects of the financial market crisis and the consequent economic downturn on the money that workers putting aside as savings.

Most major UK companies have switched over to the defined contribution scheme over the past decade, after closing their final salary schemes to new employees.

Experts regard defined contribution plans as less effective for workers because participants bear the brunt of the investment risk and it is also difficult to build a fund for those who enter late in life.

The economic downturn has come as a double blow for the workers as they not only have to struggle more to make ends meet, but the economic turmoil is also seemingly eating into the money they have put aside for retirement.

But, many of the new pensioners seem to have enough time for retirement and they are likely to make up most of the losses, the study points out.