THOUSANDS of savers could have their retirement plans thrown into disarray by the slowdown in the commercial-property market.

Scottish Equitable has become the latest provider to restrict withdrawals from its £2 billion commercial property fund. Investors now have to give up to 12 months’ notice if they want to take their money out. The announcement follows a similar move by Friends Provident last month. It imposed a six-month notice period on investors who wanted to withdraw money from its £1.2 billion property fund.

While the restriction does not apply to savers who have reached their selected retirement date, anyone with money in Friends Provident’s fund who retires early will have to wait until the summer for their money.

One reader who contacted The Sunday Times had retired at the end of last month, just days after Friends Provident imposed the restriction. Half of his pension is invested in the company’s property fund and he now has to wait six months until he can get his money.

His big fear is that the value of the fund, which has already dropped 17% over the past six months, will have fallen even further by then.

Scottish Equitable has said that it will not impose the notice period on those who retire early, but there are worries that more investment houses will impose onerous restrictions in future.

The problem has arisen as the values of shops and offices have suffered their worst downturn since the recession of the early 1990s. Total returns from commercial property fell 3.7% in December, according to the Property Investment Databank.

Over the past six months, the sector has dropped 9.5% – more than during the 1989-1990 bear market, when returns fell 8.95%. Analysts expect the situation to deteriorate further. CB Richard Ellis, a commercial-property adviser, is forecasting falls of 5.5% this year.

Worried investors are pulling money out of commercial-property funds. Andy Bell, of AJ Bell, a self-invested personal pension (Sipp) provider, said that for every one client putting money into property funds, 12 are baling out.

Norwich Union has seen the size of its Property Trust – the country’s largest property fund – shrink from £4.4 billion in May last year to £2.8 billion in December. Investors have seen the value of their holdings fall 18% in the past 12 months, compared with a 5.5% drop for the sector.

Richard Sheppard, head of pensions at AWD Chase de Vere, an independent adviser, said: “Some people with exposure to commercial property will be very worried about the state of the sector. We would advise anyone retiring now to draw on other assets in the pension first. Another option is to defer taking your pension and use money in other savings or investment vehicles. It may even be worth delaying retirement and stay working for a little longer until things improve.”

While most of the funds tend to hold about 20% to 25% in property shares and cash to pay people who want to get out, with the rest in bricks and mortar, these holdings have been severely drained in recent months because of the huge demand from worried investors – hence the desperate measures employed by Friends Provident and Scottish Equitable.

While these are the only two retail providers not allowing property investors access to their money straightaway, Norwich Union, New Star, Standard Life, Scottish Widows and M&G have all reduced the value of investors’ holdings by about 5% in an attempt to deter withdrawals.

Thousands of small-business owners could have their retirement plans thrown into disarray by the downturn too, because they often put their premises into a Sipp to benefit from the tax breaks. Anyone coming up to retirement could struggle to sell his or her property to release cash.

However, advisers said this did not appear to be a widespread problem – yet. Christine Hallett at Sipp Solutions, a Sipp provider, said: “The number of transactions has dropped, so I think it is getting harder to find buyers if you need to sell, but we haven’t seen any negative valuations yet.”

Mark Dampier at Hargreaves Lansdown, an independent adviser, said: “There will be an opportunity to get back into commercial property later this year, but it’s not here yet. Yields [income as a proportion of the property’s value] need to rise to about 6% or 7% before I’d feel comfortable about going in again.”

The average yield is currently 5.2%, according to the Property Investment Databank, compared with 4.56% last year, so there is still some way to go.

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