Members of defined contribution pension funds, particularly people close to retirement, need to be vigilant to protect their own interests. It has been a bad year for pension funds. A survey by Mercer consultants shows losses of about 14 per cent for the 12 months to end October. But pensions are a long-term products and bad years will usually be more than compensated for by strong returns in good years. This year was preceded by four years of double-digit growth and the five year rolling annual return to date is over 11 per cent.

The performance volatility shows the impact of high levels of investments in equities, the strategy that produces the best long-term returns. But people coming close to retirement should always ensure that the proportion of equities in their fund is being reduced over the final few years of their working life to avoid losing out because of stock market volatility. They should switch to fixed interest and cash so that there is no risk of a sharp fall in the value of their fund just as they need to use it to buy the annuity that will provide their retirement income.