Facing poverty in old age?

A government commissioned report has warned that millions of Britons are failing to save enough for their old age.

The Pensions Commission's interim findings released on Tuesday estimated that around 12 million people are not saving enough for old age.

As a result the commission set out a series of "unpalatable choices" to tackle the problem.

Former CBI chief Adair Turner who chairs the committee said higher taxes, raising the average age of retirement and increasing savings should all be considered to make up the shortfall.

The commission says that the lowering of the average retirement age to 62 is preventing people from saving enough.

"What we're saying is there has to be a mix of things," he said.

But Turner was cautious on reports that there is an annual shortfall of £57 billion in savings for old age.

"When you look at the figures, if you try and solve this by saying: 'Let's increase taxes or let's increase savings or let's increase the average retirement age' you can scare yourself silly with the figure, which is what's happened with this £57 billion," he said.

"If you actually say 'Well, the answer has to be a bit of a mix of different things' then it becomes more manageable."

Unequal

Turner said pensions were becoming increasingly unequal, with some groups, such as senior executives, heading for generously provided and long retirements.

The report warned there were many middle and lower-middle earners in private sector pensions schemes who were making inadequate contributions.

"There is therefore a major problem looking forward," said Turner, adding that the big problem lay 15 to 25 years ahead if
policies did not change.
 
The report suggested that housing assets could come to the rescue but only for some people who may be able to use homes to help fund their retirement.

"Housing does not provide a sufficient solution, because those who lack pensions do not have the bigger housing assets, and there are significant risks in relying on housing," said Turner.

He said the problems in this country had been made worse by the "bewildering complexity" in state and private pensions.

Turner said unless government incentives could change behaviour it was unlikely the present voluntary system of saving for pensions, combined with the present state system, would solve the problems the country faces.

The final report is not due for another year and Turner has called for a public debate on the subject in the interim.

Consensus call

Responding, Number 10 welcomed the report and said it was looking for "a long term consensual approach to this issue rather than a knee-jerk short-term response".

The prime minister's official spokesman defended the government's record on pensions, insisting ministers had been right to focus extra cash on tackling pensioner poverty.

Downing Street also indicated that two options for addressing the crisis, raising taxes or implementing a higher state pension age, were unlikely to be adopted.

However the spokesman said that the government would wait for the commission's final report before coming to any definite conclusion.

"Let us see what that final report concludes... let us see where we are this time next year," he said. "This is worth taking our time on."

Implicit criticism

The warning of a massive savings shortfall will be seen as implicit criticism of Labour's policies.

Critics say measures such as the Pensions Credit have led to a massive increase in means testing and reduced incentives to save.

Pensions secretary Alan Johnson said the report set out the "stark reality" but insisted "it is not a crisis happening now".

"It is a crisis that could happen in 15 to 20 years if we don't plan to tackle it now," he said.

"People should be able to continue working full or part-time while taking the state pension.

"But the point is it is a question of choice and incidentally, the problem is not getting people to retire at 65 or 70."

Raising the state retirement age would be wrong and the government made no apology for using the means-tested pensions credit to help the poorest pensioners, he added.

Wake-up call

The Conservatives described Turner's report as "a wake-up call".

"We need to reform the state benefit system, which he shows is far too complicated," said shadow pensions secretary David Willetts.

"We need to provide better incentives to save. And we need to tackle the most pervasive form of discrimination in our country today - age discrimination. 

"The government are already saying that they can't come up with policy proposals now.

"But, at least, after today's report they should publicly recognise that the time has come for a fresh approach.

"They can no longer pretend that there is no pensions crisis."

Liberal Democrat pensions spokesman Steve Webb said changes in employer attitudes and new legislation were needed to allow people to work longer.

Ahead of the publication of Turner's report, Webb said: "It is right that there is a problem on both the state and the private side of the equation.

"But you have got to get the state side right first.

"And it looks as though, when he publishes his report, he will have actually said things about the state scheme because it is actually discouraging people from saving.

"People not have confidence to save because when they do save the government comes along and takes means-tested benefits from them."