Economic woes spelling bad news for pension funds

13 October 2008 / by Rachael Stiles
Personal pension funds have lost almost a fifth of their value during the course of the last year, seeing more than a 10 per cent of their value wiped off in one month, as investors sell their shares amid credit-crunch panic.

In the 13 months up to August 2008, the average pension fund balance fell 18.6 per cent, according to figures from independent financial services provider Hargreaves Lansdown, and in just one month leading up to August 6 2008 the average pension fund lost 11.4 per cent of its value.

Following the world's stock markets on their downward spiral, the UK's pension funds are suffering because most are dependent on stock market investments, and further falls in shares will drag retirement funds even lower, Hargreaves Lansdown warns.

While the Government has dithered over how to save the country's banks from ruin, critics argue that ministers have paid little heed to the plight of dwindling pension funds, instead concentrating their efforts on guaranteeing people's savings accounts.

Especially hard for some to swallow is the fact that the Treasury has guaranteed 100 per cent of deposits that UK savers hold in Icesave, the UK savings arm of collapsed and nationalised Icelandic bank Landsbanki.

Critics of the government's handling of the crisis said ministers have not considered how the bail-out plan would affect pensions, and argued that people will see little incentive to invest in a pension, which is vulnerable to stock market fluctuations, when they can just put their money in a government-backed savings account.

Research has shown that more than a million people have stopped paying into their pensions in the last year following belt-tightening and a loss of faith in the pension saving system.

According to Hargreaves Lansdown, the falls in the stock market over the last year have resulted in a 18.6% decline in the average managed personal pension fund over the same period.

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