WORKERS have seen more than £157 billion wiped off the value of their pensions over the past year, with many facing the prospect of working longer to plug the shortfall, a leading consultant warned today.

The value of employees’ defined-contribution (DC) plans, where the size of the final pension is determined by stock-market performance, slumped by nearly a third from £552 billion to £395 billion in the year to October, according to Aon.

The survey is the first to focus on the impact of the credit crisis on defined-contribution rather than final-salary schemes. The latter guarantee a pension based on your earnings and length of service, with the employer shouldering the risk if stock-market performance does not match up.

With DC plans, however, workers take the risk, meaning millions of people will have to make additional contributions, work longer or face a shortfall in their expected retirement income.

The slump in the value of DC pensions came despite the fact that their 3.7 million members, plus their employers, paid in £6.7 billion worth of contributions over the same period.

“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,” said Helen Dowsey of Aon.

“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.”

The survey came as pension savers approaching retirement were urged to lock into an annuity now. Rates are currently at their highest level for six years, according to broker Annuity Direct, but it does not expect the situation to last long.

Stuart Bayliss of Annuity Direct said: “We have high rates and significantly improved value but how long can this positive situation last? With falling interest rates and the expectation of reduced inflation, the pressure on annuity rates to fall is inevitable.

“The only factor likely to push in the opposite direction is higher gilt rates required as a result of the Government needing to borrow significantly more money.”

A man aged 65 could currently earn an annual income of £7,754 from a £100,000 pension pot. The figure assumes a level annuity with a five-year guarantee.

The government-funded Pensions Advisory Service warned earlier this month that millions of people were being encouraged to take too much risk with their pensions. It said workers who paid into pension schemes which invested heavily in shares might not have been aware of the risks.

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