Leading Article: Pensions: a parable of our times

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Paralysis and a cold sweat is what most people feel when they think about pensions and saving for retirement. On the face of it our requirements seem simple: straightforward schemes we can forget about, confident that all will be well when the time comes. Yet no one offers reliable answers. So the quiet desperation grows: worrying about paying for old age is becoming a national obsession.

This week collective anxiety rose another few notches as it became yet more apparent that both the public and private sectors are all too likely to let us down when we need them most.

Take the state sector first. After the Second World War, successive governments grappled with the need for people to have a second pension to supplement the basic state provision. Two decades ago they finally came up with the state earnings related pension (Serps). All the political parties agreed with it. Yet barely five years had gone by before cutbacks in its value were being proposed. Now the Pensions Bill, currently before Parliament, entails a further devaluation, this time equivalent to more than £15 per person per week at today's prices.

Meanwhile, the basic state pension, pegged to prices, is steadily falling behind wages. Women, who can currently claim it at 60, will soon have to wait, like men, until they are 65. And those who thought their homes would be their legacies find themselves selling up to pay for long-term care.

The record of the private sector, not so long ago heralded as the dynamic alternative to schemes run by an untrustworthy state, is even more dismal. Yesterday the Office of Fair Trading reported that many people have been being ill-advised to take out investment-linked endowment mortgages to buy their properties. In short, many homeowners have been let down by supposed financial experts, who have profited from their ignorance. As a result, they may find themselves in the nightmare situation of still paying for their homes after retirement.

The endowment story is part of a larger picture in which financial institutions have mis-sold personal pensions and life insurance, and thus gained huge commissions. Even if this business were cleaned up, these institutions look incapable of delivering the certainties they once appeared to guarantee; lower inflation and a subdued stock market have seen to that. Just as state pensions are only as generous as the tax base can afford, so privately- funded schemes are only as rewarding as the stock market's performance can secure.

Those still in company pension schemes may consider themselves lucky. But even they cannot feel totally safe. Companies are finding it increasingly difficult to meet the demands of occupational pension schemes, as fewer workers make contributions to finance a growing army of long-lived pensioners.

All this is enough to make ordinary savers throw their hands up in despair. If there is no provision for old age that seems safe, why not spend today and let tomorrow take care of itself? Yet that, too, is no option. For as we all live longer and the growing elderly population threatens to overshadow a shrinking workforce, we must all find ways to put more away for our dotage.

So what do we do? The answer, usually the right one in serious financial planning, is to hedge your bets. That means saving for old age in a variety of ways: in property, personal pensions and tax-sheltered savings schemes. On the political front, we should all argue for a sensible and sustainable structure of basic pension plus a more comprehensible form of compulsory saving (in effect a pensions top-up) than Serps currently offers. The state also has an important role in requiring effective regulation of private-sector pensions providers, primarily in order to ensure transparency and honesty.

This is all, in its way, a parable about modern Britain. You cannot trust the state, but nor can you navely trust the market. The message is: think for yourself, make demands of politicians, but be sceptical of their answers - and when you a see a salesman coming down your driveway, watch out for the snake oil.