Worse still, many don't even realise how their pension is calculated and the shock will be all the greater when they do stop work.
As recently as 1990, a married man of 60 with a wife of 57, cashing in the accumulated value of his personal pension pot and buying an annuity, could expect to take a tax-free lump sum and get an annuity (an annual taxable income) of 13 per cent for life in exchange for the capital.
The sum was guaranteed for the first five years even if the pensioner died, with a half-pension for the wife in that event.
Four years ago, the annuity would be almost 10 per cent a year on the balance. But annuity rates have fallen steadily since then. Last week a newly bought annuity would be only 7.3 per cent of the accumulated fund. A single man could get a better rate if he waited until 65 or 70 before buying the annuity.
Up to 15 per cent of people retiring could qualify for an impaired life annuity which pays a higher rate for people with known medical conditions, smokers and the overweight, but relatively few companies offer them (Stalwart Assurance is the best known).
Meanwhile, a woman would get even less than a man of the same age, and anyone who wants an indexed annuity which goes up by 3 or 5 per cent a year (or just in line with the retail price index) will get less than the going rate of return to start with. Look at BBC2 Ceefax, page 260, for detailed examples.
Rates for each type of annuity vary slightly from one insurance company to another, and pensioners are free to use their maturing pension plans to buy annuities from the best offers currently available.
Although some providers will charge pensioners who buy their annuity from a different provider, most will not, so it is worth shopping around.
Until recently it was assumed that falling annuity rates did not matter because the values of most pension funds were rising in line with the shares and bonds in which they were largely invested.
But a recent calculation by the Annuity Bureau, a specialist adviser on annuities, pointed out that in spite of share values rising 21/2 times in the last eight years, anyone who delayed taking an annuity in 1990 would only get 40 per cent more income starting in 1998 and would take nearly 20 years to make up the eight years of annuity payments foregone in the meantime.
If share prices are now set to fall, the prospects will become even less attractive, because no one expects annuity rates to rise again sufficiently to compensate for falling asset values. They could even go on falling.
It is not something anyone with more than five years to retirement needs to worry about, but anyone retiring in the next two to five years needs to check where their pension fund is invested.
If they are heavily invested in shares or unit trusts, it might be worth asking the managers if money can be switched into bonds or cash next time the stock market goes up.
Anyone planning to retire in the next year has has some hard choices. Some pensioners may need to choose a flat-rate annuity rather than an inflation-proofed one to maximise initial income.
If the market continues to fall, another possibility is not to buy an annuity immediately and just wait and see, but not everyone can afford to do without their pension income in the hope of an upturn in annuity rates.
A further option is to choose a "phased" annuity, and take only part of the pension if the market remains depressed, or to choose an income draw-down plan rather than an annuity.
Back in 1995, the government agreed to let personal pension holders defer buying their annuity and switch to an income draw-down scheme - a new product on to the market which allowed them to take an income out of their personal pension fund and keep the rest invested.
But by taking the maximum income allowed from a draw-down plan, it is easy to deplete the capital so that there is less with which to buy an annuity when it becomes compulsory to do so at the age of 75.
Phased annuities and income draw-downs are also costly to set up and really are only suitable for people with pounds 250,000 to invest who are able and willing to wait for a minimum of five years before they need to buy their annuity.
Alternatively, use the pension pot now to buy a with-profits annuity (available only from Equitable Life, the Prudential and Scottish Widows) or a unit-linked annuity (from Equitable Life, Allied Dunbar and Scottish Widows).
However, if the value of the with-profits fails to match the chosen payment profile, so will the future payments.
A unit-linked annuity invested wholly in shares is even more risky. Payments will rise and fall each year in relation to the dividends on the shares or the units in which they are invested.