Pensions crisis worse than feared

THE STARK choices facing Britain if it is to avoid a pensioner poverty disaster were dramatically laid out today.

The bleakest assessment yet of the vast pensions shortfall warns that only a combination of later retirement, increased taxes and higher savings could defuse the pensions timebomb.

A devastating report commissioned by the Government said that more than 12m working people over 25 are not putting enough aside for their retirement.

The report from the Government's Pension Commission says three unpalatable options are open to avoid millions of people living out a retirement of struggle and deprivation.

The options are:

A rise in the average retirement age for men and women from 63 to almost 70.

A £57bn-a-year increase in taxes and national insurance equivalent to an increase of almost 20p on the basic rate of taxation.

At least a doubling of the level of savings being put aside by workers for their retirement. For typical workers on middle income this would mean finding almost £5,000 a year or more than £400 a month.

The report says the three options are the only ones open and a combination of them will be required. Otherwise it warns the 'muddle-through option' would leave pensioners 30% worse off by 2030.

Adair Turner, the former CBI boss who chaired the commission, said Britain had been living in a 'fool's paradise' for a quarter of a century.

He added: 'Either pensioners will become poorer relative to the rest of society, or taxes devoted to pensions must rise to pay for a more generous State system, or private pensions saving must rise, or average retirement ages must rise. We must act, as a society and individually, to decide what mix we want.'

The report warns that the worst problems are faced by private sector workers on close to average incomes.

Those on high earnings or in feather-bedded executive schemes will be well provided for while the worst-off will be protected to some degree by the Government's system of means-tested benefits and credits.

Turner blamed the failure of successive Governments to tackle the crisis. He said: 'The underlying problems have been getting worse for 20 years at least, but were marked by the temporary impact of the baby boom generation, by a failure to anticipate the scale of life expectancy increases and by the irrational equity market exuberance of the Eighties and Nineties.'

He added that the 'bewildering complexity' of schemes offered by the pensions industry also deterred people from making adequate provision.

Today's report is the ninth and most explosive of a series of official consultations on Britain's pensions crisis since 1997.

The report says people retiring in the next 10 years have little to worry about and that the crisis will only unfold in full in about 15-25 years' time.

The insurance industry broadly welcomed the report, but said the Government now needed to act decisively to close the yawning savings gap.

Mary Francis, director-general of the Association of British Insurers, said: 'There are no easy answers to the pensions crisis, but the bones of a solution are emerging.'

Friends Provident said the report showed more than ever that people had to do far more to put money aside for later life. Managing director Ben Gunn said: 'The sooner you start, the sooner you can afford to retire.'

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