Here we go again - another attack on public-sector pensions (Cost of public-sector pensions equal to 85% of GDP, think tank warns, 29 June, 2009). The report by the British-North American Committee on government commitments to public-sector pensions in the UK, US and Canada demands clarification on a number of key points.

First, the current level of public sector pension provision is self-funding, ie the money needed is covered by the contributions made by employers and employees. This scheme is not asking for bailouts from the government.

Second, the cost of providing of a public-sector pension, according to a recent report by the Pension Policy Institute, is the same the cost of a typical final salary scheme in the private sector.

Third, the government has negotiated with the trade unions and an agreement has been reached to raise the retirement age for new entrants for public-sector schemes; to increase average member contributions; and to cap the increase in government costs.

And, finally, the report is an estimate based on an extremely cautious basis and fails to mention that the potential liability is spread over 50 to 60 years.

Pensions are important to the quality of life of every citizen, ensuring financial security in old age - they are not a luxury add-on at the whim of the employer.
Gail Cartmail
Assistant general secretary for the public sector, Unite the Union

• This article was amended on 30 June 2009. The original link in the opening paragraph referred to a "think thank". This has been corrected.

Rising costs are encouraging more employers to scrap their final salary pensions leaving employees facing a much poorer retirement

Falling stock markets and new tax rules are encouraging businesses to switch away from final salary pension schemes and condemning workers to a poorer retirement, according to a clutch of new reports.

Last night, consultancy firm PricewaterhouseCoopers (PWC) said 96% of firms it surveyed were planning to make changes to their pension provision, with concerns about cost and risk the key drivers for the changes.

The same number said they believed defined benefit schemes, which offer workers a pay out based on their final salary, were now unsustainable, and of the 17% of firms who still offer the schemes to new employees, only a quarter intended to continue to do so.

Most firms have now switched to defined contribution schemes where the eventual pay out is based on the performance of the funds in which the pension pot is invested. This type of scheme moves the investment risk from the employer to the employee.

PWC said 77% of firms that responded to its survey said pensions tax changes proposed in the recent budget, which will make pensions less lucrative for high earners, had made offering all types of scheme less attractive.

Marc Hommel, partner and UK pensions leader at PWC, said: "A combination of the 2009 budget proposals and the recessionary economic environment are accelerating the shake-up in UK workplace pension provision.

"Employers are conducting wholesale reviews of the role of pensions as part of their employment deal, and a greater diversity in pension provision is resulting. On the one hand, employers' motivation has waned for complex, costly and risky pension schemes; on the other hand, many wish to find ways to offer tax-effective, long-term savings vehicles, especially in a high tax environment."

Recent years have seen a spate of closures of high profile schemes, with Morrisons and Barclays the latest firms to say they were closing their final salary pensions.

Hommel warned companies that such closures needed to be managed carefully. "While closure reduces future costs and risks, it can result in increased cash calls from trustees at a time when businesses are cash-strapped," he said. "That is why some companies are opting to keep defined benefit schemes open to future accrual while reducing the benefit levels considerably."

Employee impact

Separate research published today by insurer Prudential reveals the impact of this downgrading on employees.

It shows workers with defined contribution pension schemes are set to receive only a quarter of the retirement income people with final salary pensions get.

A 25-year-old worker who joins a defined contribution scheme this year, into which they pay 2.7% of their salary and their employer contributes 6.5%, could expect to receive an annual pension of £16,023 if they retired at 65.

This compares with an annual pay out of £57,714 that a 25-year-old who joined a final salary scheme could expect to receive in 40 years' time.

Prudential warned the actual buying power of the pensions would be even lower than they are today, as its research does not strip out the impact of inflation.

The difference in retirement incomes between workers in the two types of scheme is even starker for people who retire early, with a worker who retired at 60 likely to receive an annual income of just £8,836 from a defined contribution scheme, compared with one of £47,826 for a member of a final salary one.

However, one of the factors driving the lower defined contribution pensions is likely to be the smaller contributions made into the schemes.

Workers' pay in an average of just 2.7% of their pay into defined contribution schemes compared with contributions of 4.9% made by employees into final salary schemes, while employers pay in around 6.5% to defined contribution schemes, well down on the 15.6% paid into final salary schemes by companies.

The figures are based on conservative expectations for investment returns for defined contribution pensions of just 3% a year, and if returns of 5% a year were achieved, a 25-year-old making the same contributions could expect to retire on a pension worth £24,099 a year when they were 65.

Prudential's Martyn Bogira said: "As more private sector employers look to manage costs and exclude new staff from joining final salary schemes, the risks are high that many more people could find themselves struggling to live comfortably on their pensions and facing an old age on the bread line."

Yesterday figures from the Office of National Statistics showed the state pension on offer in the UK is the 17th most generous among OECD countries, providing just 31% of a person's pre-retirement income.

In September, 2.3 million female pensioners were paid 60% or less of the full state pension – now worth £95.25 a week – because of broken employment history, with many applying for pension credits to supplement their income.

The ONS said planned reforms starting in 2010, which will link the state pension with earnings and allow women to claim a full pension after fewer years paying national insurance, would result in higher state pensions pay outs.

However, Michelle Mitchell, charity director for Age Concern and Help the Aged said action was needed sooner.

"With British pensioners receiving one of the lowest state pensions in Europe, the government must go further to improve the situation for the country's poorest older people. They should start by applying the new rules for those who have already retired and reinstate the link between earnings and the basic state pension as soon as possible.

"We would urge any older person who is struggling financially to find out if they are entitled to benefits – more than £5bn of benefits goes unclaimed by pensioners each year."

• Government faces £1tn retirement bill
• Increase in civil servants adds to Treasury's burden

Calls for major reform of public-sector retirement schemes are expected to intensify this week, following a report that argues the cost of honouring pension promises to civil servants, teachers and nurses almost matches the UK's national income.

A survey of public-sector pensions published today puts the cost at more than £1tn, or 85% of GDP.

The report by the British-North American Committee, a group of business, unions and academics, examines government commitments to public-sector pensions in the UK, US and Canada.

It accuses all three governments of underestimating the costs of providing pensions by using exaggerated projections of investment returns over the next 40 years. It said the UK government, which has the largest proportion of unfunded schemes of the three countries, has the biggest problem. The public-sector pension cost in the US and Canada is a little more than a quarter of GDP.

The report chimes with warnings from the rich nations' thinktank, the Organisation of Economic Co-operation and Development, that governments risked social unrest unless they tackled the widening gap between workers in cheaper private schemes and those with generous guaranteed pensions, especially in the public sector.

The OECD voiced concerns that preoccupied governments might neglect pension reform as they navigate a route through the financial crisis.

Tory and Liberal MPs have already called for a review of public-sector pensions. Business leaders joined the chorus earlier this year following a clutch of reports highlighting the escalating costs of providing gold-plated pensions to Britain's 5.8 million public-sector workers.

According to the latest figures, the bill to taxpayers will rise to £3.8bn a year this year, almost £1bn more than a year earlier.

While some arrangements, including the local government pension scheme, are invested in assets that will fund at least a portion of workers' pensions, most schemes are unfunded and paid directly from the Treasury.

The annual cost is expected to rise dramatically over the next decade as the bulk of the baby boomer generation retires. A rise in the number of workers in the public sector who enjoy guaranteed pensions will also add to the burden. The last published figures showed that between 2006 and 2007, the number of private sector workers getting a "defined benefit'" pension plunged 300,000 to 2.7 million. The number in the public sector continues to boom, up 100,000 to 5.2 million.

Unions have defended the pensions, arguing that public-sector workers are mainly low paid compared to the private sector. The average pension income provided by the local government funds is about £4,000.

They also point out that most attacks on workers' pensions come from organisations with a wider agenda to curtail costs in the public sector.

Neil Record, who chaired the BNAC's working group that drafted the study, said: "Governments, when challenged on the huge forward liabilities involved with public-sector pensions, are all too keen to respond that these can be 'comfortably met from future income from taxpayers'.

"The reality, however, is that the true costs of these large financial commitments are being hidden from present taxpayers and, even more worrying, are destined to predetermine the use of monies raised from future taxpayers as yet unborn.

"Inevitably, this will reduce the amounts available for the running of public services in the future."

Do we really need a change to the way financial advisers operate?

Yes, says Andrew Fisher, CEO of independent fee-based weatlh advice firm Towry Law

Imagine this: the top brass of a huge industry meets to discuss the most destructive issue it will face. The public it ostensibly serves has been exploited for 20 years. Regulatory authorities have finally decided to force change on a series of archaic practices, where poorly qualified "experts" administer inappropriate advice to the unwitting and are paid billions in commission to sell potentially harmful products.

The industry's response is to fight and delay change to the status quo, even to deny that it is necessary.

This isn't the Palace of Westminster but the life and pensions industry.

There are 20,000 agents masquerading as independent financial advisers with low levels of relevant qualifications. They are almost entirely remunerated by commission paid by the life industry to sell life products. These industry representatives, desperate to be seen as professionals alongside doctors, lawyers and accountants are, in reality, agents - some may say servants - to the life and pensions firms that pay their wages, expenses, "training" costs and trips to Malaga and beyond.

It is a gravy train that accounts for much of the retail financial services mis-selling of the past generation and it must be stopped in its tracks.

Not that other arms of the wealth management and financial advice industry can be proud of themselves. The private banks, which have largely collapsed under the weight of their parent bank's mismanagement, have been selling commission-based products rather than properly structured financial advice for years. The antiquated stockbroking sector - where asset diversification means buying four UK bank stocks rather than one - has little to offer but a commission-skewed process delivering appalling results.

Possibly the worst examples are the tied insurance salesmen, or "partners", in a wealth advisory firm. They are entirely commission driven, often have the lowest professional qualifications and work directly for the insurance firm, thus delivering inappropriate pensions and investment advice, which hapless clients normally sign up to under the misapprehension it is in their best interest.

A record number of investment bonds, specifically with-profit bonds, were sold by this sorry crew in 2008. These cancerous products, with their terrible returns, tax disadvantages and excessive charging structures, were sold in abundance due to the huge commissions, with no thought to the client.

No wonder the industry regulator, the Financial Services Authority, wants to bring about change.

The FSA's retail distribution review should mean that, from 2012, all independent and tied financial advisers will need much higher levels of professional qualifications and will be forced to act as an agent of their client and be remunerated accordingly. Not through the murky and potentially corrupt method of commissions but rather through fees.

Yet, in the boardrooms of IFAs and life and pensions firms throughout the land, the desire to delay and obfuscate is palpable. What they fail to realise is that, unlike the honourable members in the Palace of Westminster, they have an opportunity to put their house in order before the scandal explodes, before the public discovers just how long they have been taken for a ride.

No, says Chris Cummings, director of the Association of Independent Financial Advisers

The FSA is this week expected to reveal its plan to overhaul the way in which we buy pensions, investments and other financial products. It is the result of a three-year review and if the proposals are to be judged on one thing, it is that they must lead to the financial betterment of you, the consumer. If not, the process has been pointless.

The principles behind the review are applauded by the Association of Independent Financial Advisers: we want everyone to have better access to professional financial guidance. We also want people to buy products they genuinely need and to sleep easy in the knowledge they can trust the organisations behind those products. Be it from a bank, IFA or stockbroker, people should receive a consistent level of service and professional knowledge. But IFAs are a long way down this path: nearly half hold or are moving towards QCA level 4, the minimum standard the FSA is expected to request in its plan.

Also, the review has been long and consumers have not been served by a three-year distraction to advisers who have been leading the way in increased professionalism and transparency.

Though it started out with clear objectives, the review's focus has been questionable. Some proposals as they stand could create an environment in which advice becomes the preserve of the wealthy. For example, those relating to qualifications must allow for some on-the-job training, otherwise the cost of being an adviser or running an adviser business will spiral. This would have to be passed on to the consumer in the form of higher charges.

It is a myth that only the rich will pay for advice. IFAs serve people from across the social spectrum. They also serve the mass market in the workplace where employers will provide for their staff to hear from an IFA.

There is a danger that the final proposals could lead to less, not more, access to professional financial advice.

We hope to see recommendations for clearer labelling of the type of financial guidance or advice you are getting. In particular, it needs to be clear who is genuinely acting in your interest by advising independently on products and services from across the market. People need to know if an adviser can only select from their own company's products, while the most recent proposals blurred the line between sales and advice - consumers must be able to distinguish between someone selling a product and someone offering advice.

Commission bias has always been a charge better levelled at banks and tied agents so we must ensure we have the same system of payment for all aspects of financial services. That's why the review must introduce the same disclosure regime for salespeople and IFAs. Consumers deserve to know the full cost of a sales representative's time in providing them a service or product or they will be confused, and the potential for poor practice will re-emerge.

The review will have a fundamental impact on how you deal with your IFA, banker, pension provider or stockbroker. But it should not be change for change's sake.

Given the progress the IFA community has made by improving professionalism and levels of trust over the past 10 years, there's a strong argument the regulator should have focused its attention elsewhere.

They were meant to let you take control of your retirement planning but, says Harriet Meyer, Sipps may not be practical for everyone

Taking control of your retirement planning by choosing a Self-Invested Personal Pension (Sipp) is frequently touted as the wise route for the financially astute. But what if you want access to the array of investment options these plans offer, yet lack either the time, or confidence, to pick the best funds?

Despite the Sipp's reputation as a do-it-yourself pension plan, investors can choose to seek advice, or self-invest when it comes to these sophisticated, flexible pension wrappers.

So whether you pick Sipps linked to stockbrokers - where you can buy and sell funds and shares - or those from specialist bespoke providers that are geared up to take more esoteric investments, such as commercial property, you can consult an independent financial adviser (IFA) if you wish.

You should pay no more for taking advice than if you did so for any other investment portfolio or pension.

"We picked up quite a lot of business towards the tail end of last year, when the world was falling to pieces, from people who wanted advice on where to invest money in their Sipp, and were nervous of continuing to make the decision themselves," says Malcolm Cuthbert, managing director of Financial planning at IFA Killik & Co.

"But while there are some people taking advice, plenty are choosing to paddle their own canoe."

Advice or go it alone?

If you don't have the time or inclination to tackle your Sipp investments on your own and want to employ the resources of a manager, regulated advice doesn't come cheap. It is only worthwhile if you have a substantial pension pot, experts say; otherwise, a personal pension, or simple stakeholder option, may be more suitable.

"If you're going to take advice year-on- year then chances are that's going to cost between £500 and £1,000 on top of the charges for your Sipp, and this can eat into your fund - in which case, why not just pick a personal pension with a clear, straightforward set of available funds and model portfolios which switch to lower-risk funds as you near retirement if your needs are relatively simple?", says Brian Dennehy of IFA Dennehy Weller & Co.

Anyone considering the managed Sipp route should have a pension pot worth around £100,000, adds Mark Stone, pensions specialist at IFA Whitechurch Securities, to make it worthwhile. "Then Sipps can offer a more tailored solution to client needs, to give them more control over their retirement planning."

However, if you are willing to spend time on pension planning, there is a multitude of information available from providers that can help refine your investment choice, so you can act as your own financial adviser and benefit from a wide range of investment options.

"There's lots of research on our website to help you choose the investments," says Tom McPhail, pensions specialist at IFA Hargreaves Lansdown, which offers its popular low-cost Vantage Sipp.

"A pension shouldn't be a static arrangement as, like most things in life - from lawnmowers to marriages - it doesn't work well if you don't invest time in it. The more interest you take, the more you are likely to get out of it."

Unsuitable for 9 out of 10

Advisers are divided on whether these sophisticated wrappers really are the holy grail for investors wanting greater control. Cuthbert, for example, says that Sipps won't be suitable for 80-90% of people. The decision on whether to opt for a Sipp, over a standard personal pension, rests, experts say, on how big your pension pot is and how wide-ranging you want the investment choice to be. Before taking the plunge, weigh up the costs and the benefits.

Sipps may not be affordable if you can only make very small contributions. For example, Hargreaves Lansdown requires a minimum £1,000 lump sum or a monthly contribution of £50. Its Vantage Sipp does not allow direct commercial property or traded endowments but you can hold all other eligible investments, including hedge funds.

Unlike a stakeholder or personal pension, full-blown bespoke Sipps are special because they enable you to invest in anything. This includes shares listed on the Alternative Investment Market and Ofex, the off-exchange trading facility for even smaller companies, futures and options, hedge funds, commercial property and traded endowments.

Charges

When it comes to charges, it really depends on the type of Sipp. Providers don't work on a percentage fee basis, instead, typically offering a flat annual administration fee for doing the job, which makes them suitable for people putting higher sums into their pension.

There's also often a set-up charge, which averages around £300 for a £100,000 Sipp. Behind this average, however, there's a lot of variation, with charges ranging from nothing to £600 or more - particularly those allowing the more exotic investments.

If you opt for a Sipp and then decide you've made the wrong decision as you want to take advice, say, but your pension pot is relatively small, it's possible to transfer to a basic personal pension.

"You'll need to go to the personal pension provider you want to move your fund to, and complete an application form," says Stone.

"But you will need to encash your pension fund back into the Sipp bank account before moving it to the new provider, and there will be a fee of usually around £250 to move the fund, along with dealing charging for encashing your funds - so check the cost implications."

Local authorities across Britain are believed to be borrowing hundreds of millions of pounds from staff pension schemes in order to boost returns on their own cash deposits - without sharing the full interest with the pension fund.

Unions want this investment practice, which is outlawed in the private sector, to be banned immediately. They have suggested that councils' investment strategies may already be illegal.

The Local Government Association insisted that councils were acting within the regulations. "The law requires councils to invest their pension fund money properly and prudently, and that is what they do," it said.

The controversy highlights potential conflicts of interest among council finance officers, many of whom are responsible for pension investments as well as for the general council funds used to finance day-to-day services.

Councils are allowed to invest 10% of their pension fund money and have typically elected to put the borrowed cash in high-interest accounts. In return, the pension funds receive a highly uncompetitive interest rate, based on seven-day Libor (inter-bank rates).

Critics of the scheme have been quick to see echoes of the Robert Maxwell scandal, when the publisher used more than £300m of Mirror Group pension money to subsidise his business empire.

Lord Oakeshott, the Liberal Democrat pension spokesman, said councils were acting irresponsibly and in breach of basic governance principles.

"Why should public pension funds have inferior corporate governance standards and protection from conflicts of interest than private funds? Councils playing this game are on a slippery slope that ended with Bob Maxwell mixing pension fund cash with his own. They should stop it now, for good," he said.

Colin Meech, the national officer of the public service union Unison, said: "The government has been negligent and has not observed UK pension fund law, principally the Occupational Pension Scheme (Investment) Regulations 2005, which disbar employers from borrowing from their staff retirement funds. According to legal advice obtained by the union, this is a potentially criminal act."

Local government investment decisions have faced unprecedented scrutiny in the wake of the Icelandic banking crisis. About £1bn of local authority cash has been trapped in three failed banks: Kaupthing, Landsbanki and Glitnir.

Freedom of information requests by the local authority journal The MJ discovered that, in several cases, a good proportion of deposits were drawn from the Local Government Pension Scheme.

Most local government pension schemes have suffered large falls in value over the past two years, which will only be made worse by part of their investments being channelled into low-interest bank deposit accounts.

From pensions to PPI, Sam Dunn reviews some rogue practices in the financial service sector's hall of shame

Fat profits first, customers second. Or how about slavering execs willing to flog their own grandmother for a commission? Cliches abound about the UK's financial advice industry for a reason: they're grounded in an all-too-familiar reality that has left hundreds of thousands of consumers out of pocket and in deep, lasting suspicion about the real motives of sales staff. Here are six of the biggest scandals to stain an industry unlikely to ever cover itself in glory.

Personal pension mis-selling

It began as a 1980s government- sponsored pensions revolution: contract out of your company pension to potentially boost returns on your state second pension - a basic pension top-up - by investing in a personal pension.

Armies of commission-driven salesmen then went on the rampage to convince the public their valuable final-salary occupational schemes - guaranteeing set sums at retirement - should be ditched in favour of riskier personal pensions based on stockmarket returns.

Disaster ensued as vast numbers of people traded generous and safe pensions for riskier alternatives. The fall-out brutally damaged providers such as Prudential and Abbey Life, whose products were mercilessly flogged; Royal & SunAlliance was fined more than £1.35m for failing to identify and compensate 13,500 victims, while the Pru was hit with £650,000 for pensions mis-selling.

Endowment mis-selling

The 1990s nickname for Allied Dunbar was "Allied Crowbar", earned after sales tactics strong-armed borrowers in to taking out endowment policies. In the late 1980s, mortgage advisers sold interest-only home loans without properly explaining the risks of stockmarket endowments - designed, in theory, to generate enough cash to pay off a property's capital value 25 years later. As markets fell, so did endowment values and borrowers' ability to pay off their home. Compensation followed despite lenders trying to stop claims with confusing letters and rejections: LloydsTSB was fined £1m, RBS some £2m and Prudential £750,000.

Equitable Life

A scandal that forced the world's oldest mutual to its knees, with compensation claims for policyholders who bought pensions only to see them plummet in value still ongoing. In the late 1990s, the insurer failed to set aside enough cash to cover "guaranteed" with-profits annuities for its customers and - in 2000 - lost a House of Lords court case after trying to cut the size of pension payouts. Subsequently, policyholders saw their wealth shrink as Equitable fought for its life.

'Split cap' mis-selling

Complex investment trust companies took cash off customers, borrowed up to their necks, and then bought shares in each other to prop up prices and rake off profits: welcome to this decade's split-cap scandal. People were misled by adverts such as Aberdeen's Preferred Income Trust, using a sleeping baby analogy to reassure investors that it, too, was a "one-year-old [trust] that let you sleep at night". Split cap trusts - so-called as they split the flow of income generated between different types of shares - turned out to be very risky as they short-changed 50,000 investors, sparked an investigation and cost £144m in compensation.

High-risk precipice bonds

Regular, high income was on offer, but without protection for your capital invested in stockmarkets: the repeated mis-selling of so-called "precipice" bonds to unwitting, often elderly, savers prompted one of the biggest fines so far - £100m - for LloydsTSB, which sold extra income and growth plans. Returns of more than 10% were promised as long as stocks didn't fall by, say, 33% over a year - but they did, and capital vanished. Bradford & Bingley was punished with a £650,000 fine.

Payment protection insurance

"So, the cost to you of a fully-protected personal loan is £150 a month ... how does that sound, sir?" The words "fully protected" helped flog billions of pounds worth of PPI that, in many cases, wouldn't pay out to the self-employed, jobless or those with existing illnesses; in many cases, customers were never asked about such drawbacks. Hefty fines include £7m for Alliance & Leicester, £1m-plus for HFC Bank and £840,000 for Liverpool Victoria Banking Services. FSA and Competition Commission inquiries are curbing the worst excesses, while new rules from October next year insist customers have seven days to decide whether to buy it or not.

• How did we do? Have you been caught up in a financial scandal we haven't covered? Email cash@observer.co.uk or write to Cash, The Observer, King's Place, 90 York Way, London, N1 9GU.

The Financial Services Act 1986 (FSA) - the initial legislation which controlled the way personal finance products are marketed and sold in the UK - was based on the idea of "caveat emptor" or "buyer beware".

This was incredibly pertinent because at that point, financial scandals were rife. Every week, Cash ran stories about rogue salesmen running off with their clients' money. They were tied agents, supposedly selling the products of just one company.

But the clients of many independent financial advisers also came a cropper after investing in Barlow Clowes, an "investment" firm run by the infamous Peter Clowes, who spent more than £100m of his clients' money on private aircraft, cars, homes and a luxury yacht.

Arguably worse still was the mis-selling of personal pensions. I remember going to a meeting in 1988 at which a union official told me how an insurance company's agents were standing at the gates of his factory every night and persuading employees to transfer from their company pension to expensive personal pensions. "You've got to write about it," he said. "People have got to be told how much they could lose."

Sadly, 21 years on, the mis-selling is continuing: a notable recent example is the pushing of expensive and often useless payment protection insurance by banks. And, despite the protestations of Chris Cummings in Question of the Week, some IFAs admit that their peers still sell certain products purely because they pay higher commission. Commission is paid by the provider to the adviser - but don't be under any illusions: the money is coming out of your premiums, and can have an enormous effect on what you get when you cash in an investment, pension or policy.

So the Financial Services Authority understandably thinks a new framework for the way advisers operate is necessary. But don't rely on the regulator sorting things out. The industry will be given three more years to implement the new rules, and even then, it might not work.

The only way to ensure that you get advice that meets your needs is to choose someone who is highly qualified and charges fees, rather than commission (try findanadviser.org and financialplanning.org.uk/consumers/cfp_search.cfm).

But paying fees means forking out for the advice upfront. Goodness knows where this leaves those on a low income and even smaller savings, who feel paying up to £300 an hour for advice is a bit excessive. They will undoubtedly end up being sold inappropriate products by their banks.

cash@observer.co.uk

International survey suggests more than 20% are dipping into nest-eggs to pay down debt

More than 20% of the world's workers have dipped into their savings to pay down debt and 13% have stopped saving altogether, according to a study of retirement trends over the past year.

In Britain, China, India and the US, the study suggests, savings have taken a back seat to maintaining living standards threatened by the global downturn.

According to research by HSBC, almost nine out of 10 people feel they are unprepared for retirement, and three-quarters do not know what income they can expect when they stop working.

Even in countries where the population is relatively young, there is a degree of panic among legislators keen to prepare for the day when over-65s outnumber schoolchildren. According to HSBC's head of insurance, Clive Bannister, China is drafting plans for a nationwide scheme based on an occupational pension model established in Hong Kong. At the moment, most Chinese workers fall outside the limited number of occupational schemes and must rely for a retirement income on younger family members or their own small savings.

Last year, Britain reached the point at which 65-year-olds outnumbered 16-year-olds.

Bannister said the report, which was based on interviews with 15,000 people in 15 countries, showed there was a "downturn deficit" that the state alone could not solve. He said: "the recession means that people are worrying more about surviving from day-to-day than they are concerned about the future".

He added that the situation in fast-growing economies such as India and China was more difficult. "We can see the state retreating across the globe as the number of older people increases quite dramatically. There simply won't be enough workers to support a retired population through taxation. In emerging economies, falling state benefits means that, more than elsewhere, individuals must look after themselves."

The last six months has seen a severe downturn in projections for retirement savings after a torrid two years for world stock markets and steep declines in interest rates. The problem is compounded by increases in life expectancy in most countries that mean pension planning must be extended to cope with a longer retirement.

Several countries, including Britain, have sought to raise the retirement age, but the burden of working longer has, in the main, been shifted by the current generation of over-50s to younger workers.

Previous HSBC studies have shown that workers from China to Britain expect to work beyond the age when they receive state pensions. But while many workers will remain fit enough to keep working into their 70s, others will find that they are unable to carry on and could fall into poverty.

The reluctance to save in the downturn adds to the "unpreparedness gap" being felt in every major economy, the bank said.

Stephen Green, the bank's chairman, said: "A perfect storm is confronting pensions planning, created by an ageing population, falling pension fund values, a drop in state and employer contributions and an economic downturn which is forcing people to make financial choices."

Green wants governments to support education schemes and financial advice centres for workers to make informed choices about their retirement planning.