Pensions gap 'is threat to economy'

WORKERS must do more to prepare their finances for retirement because inaction poses a serious threat to the economy, the City watchdog has warned.

The Financial Services Authority highlights the pensions-savings gap - along with hedge-fund security, house prices and the weakening dollar - as the biggest risks for the UK economy.

The Financial Risk Outlook warns that the pensions problem will escalate in the coming year.

'We see more evidence of a savings gap with consumers' expectations for retirement and their saving and borrowing behaviour being out of line,' the report warns.

It adds that the complexity of mortgage plans and savings products are partly to blame. Consumers are urged to think twice before buying insurance products with reviewable premiums, equity release schemes and investment products offering guarantees. It says homeowners should not rely on house prices continuing to rise.

The warning follows the Pensions Commission's investigation last year, which found 12m workers over the age of 25 are not saving enough for retirement.

The FSA warns fund managers to remain cautious about investing in hedge funds, which are lightly regulated and in extreme cases 'could also represent a risk to market confidence and financial stability'.

It says that if the dollar remains weak, this will stall the Japanese and eurozone recoveries, stifling UK growth.