Pension fears as people live longer

INSURERS could face bankruptcy as people live longer, a new report warns today. The study by the Financial Services Authority (FSA) emphasises that life expectancy for men and women - 45 and 49 years respectively in 1901 - is projected to be 80 and 84 by 2011. The watchdog predicts this will mean much smaller pension payouts unless people start saving more.

Carol Sergeant of the FSA said: 'The consequences of an ageing population have not yet been fully appreciated. It will not be enough to continue offering the products that worked 30 years ago.'

The FSA also highlights the move from State to private pensions, and the shift from investment risks from company pension schemes to individuals as risk factors to savers. Two-fifths of people with an annuity have less than £10,000 in their pension - equivalent of an income of only £700 to £800 a year today.

The FSA is concerned at the lack of understanding of annuities. Many people with personal pensions are not aware they have to buy an annuity, let alone understand the complex range of choices. Gordon Lishman, director-general of Age Concern, said: 'There is much confusion about what kind of provision people should be making for retirement.'

Age Concern's own research shows that almost seven out of 10 people have little confidence about retirement. The FSA now proposes to monitor pension sales more closely and scrutinise the way the industry manages increased life expectancy.

Anna Bradley, director of the National Consumer Council said: 'It is vital to ask how much of the increased risk consumers should be expected to shoulder and the share Government, employers and the financial services industry should bear.'