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Last Updated: Tuesday, 12 October 2004, 12:53 GMT 13:53 UK
Q&A: Pensions report
A hand and a calculator
A major report has put the UK pension crisis into sharp focus. BBC News Online examines the key findings and explains what will happen next.

So how big is the UK's pension problems?

The commission's report trotted out headline-grabbing figures underlining the shortfall in UK retirement provision.

In total, 11.3 million workers are not making any pension contributions. Of those who are making pension contributions - many are squirreling away far too little.

Amongst people aged 25 or over, 12.1 million are failing to save enough to enjoy a comfortable retirement.

If neither taxes, savings nor retirement ages are increased, pensioners will suffer a 30% decline in relative incomes, the report said.

Put simply, the report makes clear that the savings gap has to be closed and the longer it is left then the more difficult it will become to catch up.

How did we get into this mess?

Why many are heading for poverty in old age

The root of the problem is that we are living longer. An ageing population means that there are not enough taxpayers of working age to pay pensions for everyone.

Adair Turner, the head of the Pensions Commission, has made it clear that this demographic zero-sum game is hitting state, workplace and private pensions.

If that wasn't bad enough, a combination of low public confidence flowing from numerous mis-selling scandals and poor stock market performance is discouraging people from putting money into pension schemes.

And the clincher is that the UK's workplace pension regime - once the envy of other European nations - has fallen off its perch in recent times.

Firms have been trimming back their pension promises to workers, closing lucrative final-salary schemes and paying less money into their employees' retirement funds.

Mr Turner said that the UK's private and workplace pension regime was in "significant decline."

What is to be done?

The report has touched on several options for change, which Mr Turner told the BBC he hoped would "inform and ignite debate".

These options include:

  • Raise taxes to pay for the state pension
  • Increase the savings levels
  • Increase average retirement ages
  • Accept that the number of poor pensioners will grow

The report concluded that, given the last option is the least desirable, a combination of higher taxes, higher savings and a higher average retirement ago may be needed to cure the UK's pension ills.

These options could prove bitter medicine for much of the public and policymakers to swallow.

Why hasn't the Commission made firm recommendations?

Adair Turner
It was set up in 2002 to review the UK's private pension and long term savings regime. This included factors such as:
Trends in occupational pensions
Take-up of stakeholder and personal pensions
Effectiveness of other savings vehicles

The Commission's remit bars it from coming up with recommendations at this stage.

The second report, due next autumn, will outline recommendations.

This is after the likely date of the next general election.

A cynic would suggest that all of the options laid out by Mr Turner are unpalatable for politicians.

Who really wants their name associated with increasing the state retirement age or compelling people to save more?

But decisions made over the next few years are likely to impact the wealth of people retiring for generations to come.

"The big problems lie in 15 or 20 years time unless policies and behaviour change," Mr Turner said at the launch of the report.

How do I know if I am saving enough?

Start saving at age 18: Estimated pension pot 1,165,000
Age 25: Pension pot 700,000
Age 30: Pension pot 478,000
Age 35: Pension pot 320,000
Source: Hargreaves Lansdown. Assumes 10% of average salary saved, 7% growth rate, and retirement at 65.

The report highlights the fact that many people are relying on the state pension for their retirement income.

You can obtain a forecast of your state pension from the Pensions Forecasting Service by calling 0845 300 0168.

However, over time the state pension is set to fall relative to average incomes.

If you want to provide for yourself in retirement, the experts advise that you start early.

As a rule of thumb, each pound you put away in your 20s is worth two in your 30s and four in your 40s.

Pensions experts advise that people ought to be putting away 10% of their salary in their 20s, 15% in their 30s and 20% in their 40s in order to enjoy a comfortable retirement.

However - starting a private pension late in life may not be a good idea as high charges can swallow up a lot of the contributions made.

How will the pensions 'black hole' affect people

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