Collapse in bond prices is “disaster” for workers nearing retirement.

The collapse in the price of supposedly safe government bonds is a “catastrophe” for hundreds of thousands of workers who are close to retirement, a former pensions minister has warned.

Baroness Altmann told The Mail on Sunday it was “deeply worrying” that members of occupational pension schemes were automatically being put into loss-making investments that were assured to be “low risk”.

Those most affected took out pensions in the 1990s and 2000s or paid into individual stakeholder plans with well-known names over the past two decades.

These pension funds are usually transferred to so-called “lifestyling” funds “by default” five years before retirement age.

The funds invest in fixed-income investments – including bonds – that are intended to be less risky than other, more volatile asset classes such as stocks.

Concern: Those most affected received pensions in the 1990s and 2000s or paid into individual stakeholder plans with well-known names over the past two decades

But the sharp rise in interest rates has pushed up the yield on government bonds, known as gilts, causing bond prices – and the size of around 850,000 of those nest eggs – to fall sharply.

The bond market’s slide deepened on Friday as the 30-year Treasury yield hit its highest level since 1998 amid concerns that interest rates would have to stay elevated for longer to curb persistent inflation.

‘Once [people] “I suffered big drops in the bond market just before retirement and don’t have time to recoup my losses,” Altmann added. “Lifestyling was a disaster for many in their 60s.”

Experts say buying an annuity – a guaranteed lifetime income sold by insurers – could protect “lifestyle” investors from further declines.