£3.8trillion wiped off pensions globally

The worldwide pension crisis took a severe turn for the worse in 2008 as new research reveals that the value of global retirement funds collapsed by 19% or $5trillion (£3.8trillion) over the year.

Globally shaken: Some $5 trillion has been wiped off pensions around the biggest markets in the world

According to consultancy, Watson Wyatt, in 2008, global institutional pension funds, in the 11 major markets plummeted from $25trillion to around $20trillion.

Roger Urwin, at Watson Wyatt, said: 'The pensions system is being tested on every level. The ramifications of this global economic crisis will be played out for many years to come.

'Overall we see an industry facing a mountainous challenge.'

The decline in fund values is in sharp contrast to an average five-year growth rate, to the end of 2007, of 12% a year, taking assets back to below 2005 levels.

Pension assets now amount to 61% of the average GDP down from 72%, 10 years ago, which takes the measure back to levels last seen in 1996.

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Urwin added: 'To meet the demographic crunch ahead, countries need the advanced funding of pensions to grow relative to the size of their economies. This data shows a worrying picture.

'This is a wake-up call for governments worldwide to engineer bigger allocations to pension savings.'

Until 2007, global pension assets had more than doubled in the previous decade, growing at an average of 7.1% a year but the turmoil caused by the credit crunch has ravaged the average, which now stands at just 3.7%.

Despite losing market share in the past decade, the US, Japan and the UK remain the largest pension markets in the world while Australia is the fastest growing.

All countries in 2008 endured significant losses in pension assets, except Germany which was helped by its high allocation away from stock markets and into bonds.

Watson Wyatt's research follows a plethora of dismal news for pension funds, over the past year.

Notably, this week, the National Association of Pension Funds, concluded that in the UK, one in every four gold-plated final salary pension schemes will close their doors to existing workers during the next five years.

Former, Treasury pensions adviser, Dr Ros Altmann, said the news marked, 'the death knell' for these lucrative schemes. The trade body found that a quarter of leading firms admitted the credit squeeze would make final salary schemes too expensive to hold on to.

Some 90% of the UK's 5.8m public sector workers have final salary pensions, which promise to pay workers two-thirds of their salary in retirement and just 26% of private sector final salary schemes are open to new members.