The credit crunch has led to 20 percent of value being lost in private pension funds over the past 12 months, a new report suggests.
Hargreaves Lansdown, a financial advisor, said that decline in global stock markets were to blame for the erosion of value. This is because most large pension funds invest heavily in equities.
The report also suggested that the recent worsening of the credit crunch, which began with the nationalisations of mortgage lenders Fannie Mae and Freddie Mac and the bankruptcy of investment bank Lehman Brothers in the US, has sharpened these declines. Hargreaves Lansdown said that retirement savings had lost ten percent of value - around half the total annual losses - over the past month alone.
Moreover, this trend is likely to continue, with the FTSE 100 down around five percent this morning and investors' fears over the health of the banking sector apparently growing.
Hargreaves Lansdown also said that the events would hasten the closures of generous final salary retirement savings schemes in the UK. This is because the pensions offer a guaranteed amount for savers - meaning that the providers themselves have to make up the difference if funds underperform.
Speaking to the Guardian Tom McPhail, head of pensions research at Hargreaves Lansdown, said: "In the end, final salary schemes will be the big losers. Finance directors who must make up the difference with company funds when the stock market falls will hate the volatility they see at the moment and think hard about closing their schemes."
