Newspaper article The Journal (Newcastle, England)

Outlook Is Grey as Funds Shrink

Newspaper article The Journal (Newcastle, England)

Outlook Is Grey as Funds Shrink

Article excerpt

Byline: By Rhodri Phillips

The Government will warn this week that we need to work longer or pay more into private pension schemes to enjoy a poverty-free retirement. But Rhodri Phillips asks whether the growing pensions crisis is one of the Government's own making.

Thereis a major pensions crisis looming in the UK.

A Pensions Commission report to be published tomorrow will say that Britons are falling short of the total they need to save for retirement by pounds 57bn a year.

The scale of the shortfall is more than double the amount previously expected and we now face a choice between retiring later, saving privately or paying higher taxes.

But business leaders and politicians last night blamed the Government for creating the very problem it will be warning us about.

They said Gordon Brown's decision in his first budget to cut tax credits on pensions is now costing the country pounds 5bn a year ( a tenth of the shortfall.

However, some unions and financial experts lay at least part of the blame at the door of the business sector, and say companies ( many of whom have closed pensions in recent years ( should be encouraged or compelled to run their own schemes.

The commission report, which was chaired by the former Confederation of British Industry chief Adair Turner, is the result of a 20-month long investigation.

Mr Turner's report will say the UK contributes about 6pc of its gross domestic product to pensions every year compared with around 11pc in Europe.

This equates to a shortfall of pounds 57bn a year compared to previous estimates of pounds 27bn.

The average retirement age is currently 62 but the report concludes people will have to work an average of five years longer to fund a secure retirement. The report also finds that income tax would have to rise by 17 pence in the pound if the Government itself were to make up the shortfall.

Pensions Secretary Alan Johnson is thought to be keen to introduce a simple citizen's pension or universal pension that would raise the basic level of state support.

Writing in The Observer yesterday he warned that Britons were not saving enough, not enough employers were providing pensions and that this week's report shows people must work longer or save more.

But CBI North regional director Steve Rankin said last night: "The problem is caused in part by the Government itself.

"Going back some years Gordon Brown withdrew a tax credit, which hit pension funds very badly. The Government should bring that tax credit back.

"Employers have come in for much criticism but the amount employers pay into pension schemes has more than doubled in the last few years. Employers are committed to pensions.

"Employers should automatically opt in new employees unless they decide to opt out. …

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