Shares slump unsettles pension pots

Millions of people approaching retirement are being caught in the crossfire of the stock market turmoil which has wiped trillions off share prices across the world.

The 10 per cent fall in the FTSE 100 shares index could directly affect the eight million Britons who have their pension funds invested in money purchase or defined contribution schemes, where the size of an annual pension is usually linked to how stock markets perform.

The problem has been exacerbated by Britain's emergence as a safe haven for overseas bond investors during recent upheavals including the United States' credit rating downgrade by Standard and Poor's.

This has seen UK Government bonds (or gilts) plunge to their lowest level in decades, which in turn has hit the rates available on the annuities people buy with their pension pots to provide a retirement income.

This follows a 15 per cent fall in annuity rates over the past three years.

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