Retirement warning as plunging stocks hit pension schemes

MANY Britons may have to defer their retirement after plummeting stock markets increased the deficit at pension schemes, according to research published last night by PricewaterhouseCoopers (PwC).

Analysts at PwC warned that corporates could face higher funding contributions following the upheavals on the global markets.

Peter Woods, partner in the pensions practice at PwC in Leeds, said: “Apathy about pensions can only increase if people feel their efforts to save for retirement are wasted. There’s a risk people could jack in their pensions at a time when retirement saving is more important than ever.

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“The problem is not with pensions but ensuring people get the right balance of investments so that they do what they’re supposed to do, plan over the longer term and are not overly alarmed by market volatility.”

PwC’s analysis considers a 40-year-old who has been paying five per cent of his gross salary for the last five years into his defined contribution pension pot, which is equivalent to £250 per month in current salary terms.

If he had invested largely in equities, he would have invested broadly £13,000 of contributions.

According to PwC, this could still only give him a current value of around £13,000 and potentially even less due to the charges levied by the scheme. Since the start of August, some £2,000 would have been wiped from the size of the pot.

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A PwC spokesman said this snapshot highlighted how vulnerable defined contribution pensions are to market swings.

Mr Woods added: “Employers, trustees and pension providers have a vital governance and communications role to play here. It’s also important employers and trustees ensure charges are kept to a minimum at a time when they will be felt acutely. Stock market falls are particularly concerning for those people approaching retirement, with a danger pension pots are crystallised at the wrong time; it may be appropriate for some to defer retirement decisions until markets recover.”