New blow to pensions

Pension savers were dealt a fresh blow today as it was reported that the recent investment performance of a vast chunk of the country's retirement savings was the worst for 15 years.

Pension funds shrank by 15.6 per cent in the three months to September as they were hit by a savage downturn in share markets around the world.

"This is the poorest return since the last quarter of 1987," the year of the last major shares crash, said pension experts Russell/Mellon CAPS, which looked at the investment returns of £185 billion worth of funds.

The dismal performance will intensify pressure on companies which still run attractive guaranteed or "final salary" pension schemes. For employees in increasingly common "money purchase" schemes, the slide would eventually translate into a smaller retirement income unless reversed.

The poor third-quarter investment performance follows an almost as bad second quarter, when pension fund values also fell sharply. Over the last year funds have typically shrunk by 14.9 per cent.