Falling stock markets, the increasing reluctance of companies to offer good pension schemes, the complexity of pension products and an aging population are all contributing factors to what many experts have called ‘the pensions time bomb’.

With increasing numbers of people worried about their pension arrangements, the prospect of a long and comfortable retirement is receding for millions of Brits. We look at three of the main reasons why pension arrangements have reached crisis point.

Falling share prices

The volatility of world stock markets and falling share prices has wiped hundreds of billions of pounds off the value of people’s pension pots over the last few years.

This is a particular problem for people in ‘balanced managed funds’ – one of the most common forms of investment fund in old-style personal pensions. This is because these funds can have more than 80 per cent of their assets in shares right up until the day before someone’s retirement. Standard Life estimates that around 100,000 people in balanced managed funds reach retirement every year.

Until the turn of the new century, balanced managed funds were commonly offered by life insurance companies as the default choice for pensions. Over the last ten years, however, new funds that gradually transfer assets into safer investments as savers approach retirement have been developed.

The Daily Telegraph reported in 2008 that ‘falling share prices have wiped £150 billion off the value of personal pensions in the last year, knocking an average of 24 per cent off many of the more common types of pension that were sold in the 1980s and 1990s.’

Malcolm McLean, chief executive of the Pension Advisory Service, says: "Many people have seen the value of their pensions reduce substantially….The problem is, for these people there is no protection at all. Final salary pensions are covered by the Pension Protection Fund and annuities are covered by the Financial Services Compensation Scheme, but these old-fashioned personal pensions expose retirees to the volatility of the stock market."

Smaller pension funds equal lower income

The proceeds of a personal pension fund are used to buy an annuity – a financial product that provides an income.

With share prices and the value of pension funds having fallen over recent years, if you’re approaching retirement you have a difficult choice to make between buying an annuity now (and potentially receiving a lower income than expected) or deferring your retirement and leaving your money invested.

Andy Barton, employee benefits director at Scottish Widows, says: "One solution would be to take your 25pc tax-free cash and live off that in the hope that markets improve.

"But you need to bear in mind that there is no guarantee that markets will bounce back in the time-scale you need, and you may also get a worse annuity rate in the future."

If you are approaching retirement, it is important that you shop around for an annuity and don’t simply buy one from the company that your pension is with. You could get 10-15 per cent more income by searching for the best deal.

Pensions are too complicated

Another reason why millions of people are facing a struggle in their retirement is because pension products are too complicated.

A recent investigation by the National Association of Pension Funds found that increasing numbers of people were avoiding pensions because of the ‘charges, risks and complexity’ of the pensions system.

Lord McFall of Alcluith, the former Treasury Select Committee chair who led the Workplace Retirement Income Commission, told the Guardian: "People need to get more bang for their buck, or they’re not going to bother with a pension."

The report found that people paying into defined contribution pension schemes were often ‘at the mercy’ of stock markets. It also found that 14 million people were not saving into a workplace pension, with McFall adding that those who did were not saving enough and faced ‘scraping by in poverty on the state pension’.