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Falling share prices have wiped billions of pounds off the value of workers' pensions and could force some employees to delay retirement, research showed today.
The study, by employee benefits firm Aon Consulting, showed the value of defined contribution schemes offered by UK companies had dropped by nearly a third in the 12 months since last October, from £522bn to around £395bn.
Aon said employees and employers had paid £6.7bn into the schemes over the past year, but had lost around £157bn as shares plummeted around the world.
The losses could be even higher by the end of today if the FTSE fails to recover from falls this morning.
The loss of value will have a big impact on how much workers can expect to receive when they retire and could mean some people have to work longer than originally planned.
The number of employees enrolled in defined contribution schemes has been increasing as firms have closed the more expensive final salary schemes, and Aon said there were now more than 3.7 million workers paying into a defined contribution scheme each month.
While payouts on final salary schemes are based on a worker's salary and number of years at a company, payouts on defined contribution schemes are based on the performance of underlying investments.
Helen Dowsey, Aon's principal in the benefit solutions division, said workers should not panic, despite the size of the losses.
"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," she said.
"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."
Dowsey added tat employees approaching retirement should seek professional advice on their options, especially if they were considering making changes to their pension.
"Many may be tempted to switch their pension assets held in equities at low value and move into cash, but it's not a good time to do this whilst equity markets are falling - it effectively consolidates losses. For some it may be a question of delaying retirement," she said.
Although workers in final salary schemes will not be immediately hit by the stockmarket falls, pensions experts have warned that in the long term poor share performance could lead to the closure of many more schemes as employers struggled to find money to make up deficits.
The Daily Express recently became the latest employer to scrap its final salary scheme, saying it had become too costly to maintain.
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