Pensions are a 'slow motion car crash': The stark warning from experts over looming crisis

The looming pensions crisis resembles a 'car crash in slow motion', experts will warn today.

Almost a million fewer employees are paying into private schemes, while savings are at their lowest levels since the 1950s.

It is a damning indictment of Labour's failure to tackle the timebomb, which risks leaving millions facing comparative poverty in old age and future taxpayers with an enormous public sector pensions bill.

At the heart of the crisis is the double problem of public sector pensions  -  described as unfunded because the Government is making no provision for them now  -  and dwindling private schemes.

Tom McPhail, of financial advisers Hargreaves Lansdown, will say today: 'For millions of people retirement provision is beginning to resemble a car crash in slow motion.

'Their retirement security is based on either unrealistically low levels of private funding or on unfunded promises which future generations will struggle to pay for.

In both cases, problems are being stored up for the future.'

His warning comes as a report by Hargreaves Lansdown calls for public sector final salary packages to be replaced with defined contribution schemes to shift the burden from future generations.

Today's report notes: 'There a mismatch between the recipients of the service and those who settle the bill.

'This intergenerational transfer has always gone on, the problem is that there will be more and more retired people looking for support from fewer workers.'

It adds: 'The burden of pension promises made to today's public sector workers will fall on our children and grandchildren.

'That includes the children and grandchildren of public sector workers.'

The report also highlights the ' pensions apartheid' between workers in the public and private sectors, which has flourished under Labour.
While the vast majority of the 5.8million public sector workers have a final salary pension, in the private sector just 15 per cent have the same luxury.

Warning: Pensions expert Tom McPhail has a bleak outlook on the future of retirement provision

Figures from the Treasury also show that in 2007-08, 7.11million workers paid into a personal pension, down from 8.05million the previous year.

The report's call for state workers to be moved into defined schemes  -  where set amounts are taken from employer and employee, then invested  -  would mean income in old age for those currently on unfunded deals falling from two-thirds of final salary to half.

Currently, the typical teacher can expect to receive £28,518 a year after full pensionable service.

Under the report's reforms it would fall to £19,341.

For doctors it would drop from £45,451 to £30,940, for nurses from £17,815 to £11,535 and for police from £25,720 to £18,080.

In comparison, they highlight Office of National Statistics figures which show the average single pensioner receives just under £3,000 a year from private schemes.

Tory spokesman Nigel Waterson, said: 'This report confirms our view that the basis for many public sector pensions is simply unsustainable.

'Not only is the cost going forward too much to expect hard-pressed taxpayers to bear, it is patently unfair that final salary pensions are still the norm in the public sector when they are becoming a rarity in the private sector.'

A Treasury spokesman said: 'Reforms by the Government  -  including changes to the age at which pensions are paid and cost capping  -  will ensure substantial savings.

'All the Government's longterm liabilities, including pensions, are fully affordable each year now and into the future.'

The 77-year millstone

A child born now will still be paying for today's public sector pensions when he is 77.

The Government is committed to paying in full the pensions of public sector workers but is not putting any money aside to cover the costs.

Instead, the bill is being left to future taxpayers.

Official Treasury figures put existing liabilities at £650billion, although some independent experts say the true figure is closer to £1trillion.

They claim it would take until 2085 to pay off all existing liabilities.

Therefore, a child born today will have to contribute until he is 77 - possibly by working for longer - to help settle them.