This is the end of a “golden era”, when people retired on generous final-salary pensions having benefited from the property boom and the prosperity of recent years.

Lucky them. For younger generations, “the only solution is to work harder and work longer. It's either that or recalibrate your expectations.”

Raj Mody, a partner at PricewaterhouseCoopers (PwC), is merely being realistic about the impact of the financial crisis on British pension schemes. The fallout will leave many workers unable to retire when they had hoped and/or in the manner in which they had hoped.

The collapse of some of the top names in global finance means that many pension schemes find themselves in uncertain territory. For example, Lehman Brothers' UK staff pension fund had to apply to the Pension Protection Fund for a bailout. Days later, the collapsed bank revealed a £100 million black hole in its company scheme.

There are concerns that other pension funds could suffer as a result of Lehman's failure. Some are thought to have used the bank as a counterparty in derivative contracts intended to hedge them against the effects of inflation or fluctuations in interest rates.

Moreover, the turbulence on the global markets has brought some long-standing problems in the pensions industry into focus. “Certainly, the recent extreme market volatility has put a very bright light on what's happening in entities such as pension schemes,” Mr Mody said. The trustees of these schemes have, he added, been forced to pay far greater attention to issues of fund management.

Yesterday, the problems facing company pensions were highlighted by the latest Mercer Pension Update, published quarterly by the consultancy, which gave warning of an increased threat from counterparty risk and corporate insolvency.

Last week, PwC published its own thinking on how businesses should be dealing with the impact of the market turmoil on their pension schemes. It called for a more commercially focused attitude to managing pension risks and obligations, and more active involvement from businesses in setting investment strategy.

According to David Israel, a partner at Wedlake Bell, the commercial law firm, market turbulence has exposed another problem, a laissez-faire attitude among some pension scheme trustees, who had moved to invest in complicated instruments, such as derivatives, without adequate legal or investment advice.

In the buoyant markets of recent years, derivatives promised to deliver high returns, but now times are harder the damage caused to pensions by these risky investments could rebound on trustees.

“Given the fiduciary obligations that the trustees have, to not have had proper investment advice and legal advice could come back to bite them,” Mr Israel says.

Wedlake Bell said last week that trustees must “urgently review” their stock lending practices and involvement in short selling. Jane Wolstenholme, another partner at the firm, said that those who have entered arrangements that made short-selling possible could face legal action as members of failed pension schemes look for scapegoats.

Amid the financial crisis, companies are looking to make savings. Mr Israel said that it was important that as businesses consider cuts to benefits and salaries they are honest with employees, informing and consulting them throughout the process.

“In these times it is not an embarrassment to turn round and say: ‘We are struggling,'” he said. “People ought to be honest and keep the workforce with them.”

Keep on working

— The CBI's Employment Trends Survey for 2008 found that almost a third of employees nearing retirement age had requested to continue working and that employers granted 81 per cent of those requests

— The UK's average retirement age is 63.8 years. Today a man who works to 64 spends on average 31 per cent of life in retirement. In 1950, the average man retired at 67 and spent 18 per cent of life in retirement

— The number of people aged more than 65 and economically active was predicted to rise from 582,000 in 2005 to 775,000 in 2020 - an increase of 33 per cent

— Almost half of working people have no idea what their retirement income will be; only 10 per cent have a good idea of their future retirement income

Sources: ONS, DWP, CBI & The Employers' Forum on Age

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