Simon Read: Don't delay, heed the Government's pension warning

Changes to the state pension regime announced by the Work and Pensions Secretary, Ian Duncan Smith, on Thursday are bad news. He's planning to raise the pension age to 66 by 2016 – 10 years earlier than the previous Labour government planned – and then raise it to 70 within a few decades.

Depending on how old you are, your reaction to the news may simply be: "So what?" If you're five years away from reaching 65, it won't affect you. And, let's face it, anyone further away from retirement than that is forgiven for thinking it's still too far away to worry about, especially if you're in your 20s or 30s. But, forgetting about the thought of having to work for an extra year or five, the key thing to ask yourself is why this is happening.

There's a simple answer: demographics. There will soon be more older people than younger people. Compared with today, the number of people over 65 will increase by 50 per cent by 2030, and will double by 2060, according to the DWP. And every one of them will be due a payout from the state pension scheme.

The problem is that there won't be enough money to pay out to them. The state pension is little more than a Ponzi scheme which relies on people paying in to raise the cash to make payouts to members. And like all Ponzi schemes the UK's state pension will implode when the number of people expecting payouts gets larger than the number of people paying in.

The Government has recognised that, which is why it is taking action now. But its unpopular move should be ringing alarm bells for anyone under retirement age. The Government is desperately trying to ensure it can meet its future commitments under the state pension scheme. But we should all be doing what we can to ensure that our own retirement pot has enough cash in it. The estimated two-thirds of people who are planning to rely on the state pension when they retire need to think again.

"Everyone needs to ask themselves whether they are doing enough to save for their retirement," suggests Tom McPhail, a pensions expert from the advisers Hargreaves Lansdown. I don't agree eye-to-eye with everything Tom believes, but he's spot on about this issue.

Anyone who is not thinking about ways to improve the amount of cash they have to spend in retirement is facing a frugal future. And they'll only have themselves to blame after warnings like the one from the Government this week.

What can you do? Are you in a company pension scheme? Or have you set up your own personal pension? If you've done neither then it's time to do so. If your employer has a company scheme then ask about joining it. It's likely to have benefits – not least company contributions – that make it worthwhile.

If your company has no pension scheme, then set up your own. Bear in mind that all you're actually doing is starting a savings scheme with the single aim of providing you with enough cash to give yourself a decent standard of living when you retire. You don't even have to put money into a pension scheme. You could simply save into an Individual Savings Account or other scheme, but you would miss out on the government's contribution – at your income tax rate – to your pension scheme. That's right, the government wants to give you cash to encourage you to save into a pension. Do you really want to turn that down?

If the whole subject leaves you confused about what's best to do, get expert help. A independent financial adviser will help you work out how much you need to save to achieve the retirement income you seek. Or the adviser will explain to you why it won't be possible to get a big enough pension pot and what your actual expectations should be. Either way, it will be a step on the path to carefree golden years rather than painful pension penury.

s.read@independent.co.uk