Yields from with-profits pensions have slumped by nearly two fifths in three years, according to a survey.
The fall is continuing to scupper hopes of a comfortable retirement for many people, Moneyfacts, the financial data company, said yesterday .
At the same time, more than half of people approaching retirement are in debt and are failing to save enough towards their pension, a separate study has shown.
Moneyfacts' figures show that an individual with a with-profits personal pension retiring today could be almost 38-per-cent worse off than someone who made the same premium contributions but reached retirement just three years ago.
In July, 2002, a male retiring at age 65, having contributed to a with-profits personal pension for 20 years would, on average, have accumulated a fund worth £98,450.
But the same man retiring today, after paying identical premiums, would be left with a fund of just £61,578.
The survey examined the latest unit-linked and withprofits pension returns based on a £100 gross monthly contribution.
It found that even over the last 12 months, longer-term payouts have continued to slide alarmingly.
The average ten-year and 15-year with-profits return have dropped by more than four per cent over the last 12 months, while the average 20 and 25 year payouts have plummeted by more than 12 per cent.
Moneyfacts said that despite being viewed as a safer alternative to equity funds, more with-profits pension funds have failed to show a profit after five years than balanced managed funds.
Abbey ( £ 5,585), AXA (£5,578), Clerical Medical (£5,686) and Scottish Life (£5,841) will all have lost money on the £6,000 contributions invested.
Unit-linked funds, in contrast, have recovered from the post-millennium stock market slump with average five-year returns rising from £4,902 in July 2003 to £6,510.
Richard Eagling, editor of Moneyfacts' Investment, Life & Pensions magazine, said the improved performance of unit-linked funds would be a relief to many investors and help to restore confidence in pensions.
"It is clear that, for many with-profits providers, the twin problems of low bonuses and reduced equity exposure are continuing to hamper the performance of their funds."
Prudential said yesterday that its survey had shown that about 52 per cent of over-50s were paying off debt when they should be focusing on saving for retirement.
Among the over-60s, 45 per cent admit to still having debt to clear.
Ali Crossley, director for lifetime mortgages at Prudential, said: "Clearly it's crucial for all age groups to consider long-term solutions to pensions provision."
The financial worries surrounding older people were underlined by retirement property group Economic Lifestyle which estimates that more than half a million people aged over 65 are still paying off mortgages and that many will not be clear until they are into their 70s or later.