UP to 90 per cent of recent retirees are unlikely ever to meet their expected investment returns after the market crash of the past year, with many likely to run out of savings and wind up dependent on the age pension.

The Henry tax review is considering proposals that would reduce the heavy dependence of retirees on the sharemarket, while the OECD is urging nations to reform their retirement regimes to promote safer investments, The Australian reports.

The Henry review is weighing recommendations that the government use compulsion to force people to spend some of their superannuation savings on buying annuities, which would provide a guaranteed income as long as they lived.

Australians have far more exposure to the sharemarket than any other nation, with 80 per cent of their assets in shares or mutual funds.

Most countries have 10 per cent or less, with no other country having more than 60 per cent, according to IMF research.

The funds management group Challenger argues in its submission to the Henry review that market downturns are more common than widely believed, and can be devastating to superannuation savings if they occur early in retirement.

"Not only is there is a significant probability of one or more major adverse market events during the period of any person's retirement, but that even a short period of adverse market activity, particularly if it occurs early in retirement, will substantially increase the probability of retirees' savings being exhausted," the company says in its submission to the review.

Although shares have higher long-term average returns than other investments, they are also more volatile.

Across the past 138 years, shares have generated negative returns one year in three. The average size of the fall is 13 per cent.

Most people who do not take a lump sum on retirement draw down their superannuation share investments using an allocated pension.

The fact they are drawing down their capital as well as using dividends means that losses early in retirement are magnified.

Challenger estimates that someone with a typical 25-year superannuation pension who suffered the average loss of 13 per cent in their first year would face an almost 90 per cent chance of running out of money before the pension expired if they drew on it at the long-term average rate of 8.4 per cent.

Over the past 12 months, shares have suffered a 30 per cent fall while, in the year to March, superannuation funds reported an average drop in net worth of 17.5 per cent.

The report says the 25-year period of a typical superannuation allocated pension is not nearly long enough to achieve the average 8.4 per cent return with any certainty.

Read more on this story at The Australian.