PENSION funds have taken a sharp dive after months of turmoil in the stock markets.

Plunging share prices have wiped 8% off the average scheme over the past six months, with some savers suffering falls of up to 30%.

Many investors who have a long way to go to retirement don’t need to be too concerned. Hopefully, by the time they retire the funds will have made up the loss.

However, hundreds of thousands approaching retirement, and investors who have already retired and opted for income drawdown, are being encouraged to review their plans urgently. Falling markets have put their retirement income at risk.

Drawdown schemes are popular with investors who don’t want to be locked into an annuity. They allow you to take an income from your pension fund, which remains invested.

If your investments do well you can draw an income equal to or even higher than you would have received from an annuity and watch your retirement fund grow.

However, after markets have plummeted, investors are being warned that they could be forced to take a cut in their income.

Most at risk are those who have been taking an income close to the maximum level permitted: 120% of the income they could have got from an annuity.

If your fund does not grow quickly enough to cover the income withdrawals and charges, it will start to shrink, making it harder to keep up the income payments without further depleting the fund. The level of investment returns needed to meet this target can be quite demanding even when stock markets are doing well.

A 65-year old man with a £250,000 pension fund could draw a maximum income of £21,900 based on an annuity income of £18,250 – a yield of 8.8%, according to William Burrows Annuities, a specialist adviser. Assuming annual charges of 1.5%, his fund would need to grow by 10.3% a year for withdrawals not to eat into capital.

Up to 350,000 people due to retire in the next 12 months could also see their retirement income badly depleted. Many will have already moved a large chunk of their fund into cash.

Many money purchase company plans automatically move your money from shares to cash in the run-up to retirement. If yours doesn’t you can usually request a move of part or all of your fund into a cash fund: personal pension savers can do the same.

Those who have remained in equities, and have lost most, are being encouraged to consider all the options. Investors in final-salary plans need not worry as payouts should remain unchanged.

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