Pensions: Tumble £157 billion in credit crisis

Employee’s fall victim to the credit crunch as their pensions see £157 billion wiped off the value in the past year, many now faced with working more years to stop the shortfall warned leading consultants today.

According to Aon, the value of workers defined-contribution (DC) plans, where stock market performance is the deciding factor as to the size of the final pension, tumbled by almost a third from £552 billion down to £395 billion in the year end to October.

This is the first survey that concentrates on the impact of the financial crisis on defined-contribution rather than final-salary schemes. The latter pension is based on the employee’s length of service and earnings, with the employer taking the hit if the stocks don’t match up.

However with DC plans it’s the employees that shoulder the risk, so if the stocks perform well they would have a bigger retirement package, but if the stocks badly perform they could be seen either working longer or making additional contributions for the shortfall of their the pension they expected.

The Pensions Advisory Service warned that a lot of employee’s who paid into pension schemes that invested heavily in shares could have been unaware of the risks.

Source: timesonline