Those who are nearing retirement may have to continue working for longer to offset the crash in value of pension pots, a leading analyst said yesterday.

Michelle Lewis, senior policy adviser at the National Association of Pension Funds (NAPF), said those with a defined contribution scheme, where members shoulder the risks of fluctuating markets, may have to defer cashing in their pensions.

It is estimated that the overall value of pension funds has dropped by more than 20% over the past year, with workers holding a fund worth £100,000 a year ago now potentially £900 a year worse off.

Ms Lewis, who is attending the NAPF conference in Glasgow, said last night: "One thing that those in a defined contribution scheme can do is defer taking their pension. That has of course got further implications in terms of affordability.

"Also, the individual may have to ask if they can afford to work a bit longer to receive some of the benefits (of their pension fund). I know that you plan for retirement and expect to leave on a certain date but given where they are with their pension, it might mean that people will have to stay employed."

It is estimated by the NAPF that more than five million people in the UK hold a defined contribution scheme. Around one million people are due to retire in the UK within the next two years, although it is not clear how many have private pension schemes.

However, Ms Lewis said that there was some protection in defined contribution schemes and that many of those who were nearing retirement age would have their money placed in low-risk investments.

"Many members of defined contribution schemes go into a default lifestyle fund. This means that if you joined the scheme in your twenties, the money would go into higher risk stocks and shares. As you get older, the money is switched into lower-return asset classes such as cash and bonds, where the money is less at risk and a bit of a cushion is provided."

Defined contribution schemes are becoming more popular again as defined benefit schemes - such as final salary pensions - are axed by employers who find them too costly.