A REPORT by the Pensions Commission yesterday found that workers will suffer a 30 per cent cut in their retirement income unless urgent action is taken to tackle the pensions crisis. The Northern Echo answers your questions about the crisis - and what you should be saving for your retirement.

Q. What is the pensions crisis?

A. There is a £57bn shortfall every year in the amount people should be saving and what they are putting aside for retirement.

It means many people who have been saving throughout their working lives may find, on retirement, their income falls well short of what they had hoped for.

Q. What has caused the crisis?

A. Bluntly, there are more people of retirement age on pensions because we are living longer.

In 2002, there were an estimated 10.9 million pensioners in the UK but that figure will reportedly rise to 15 million by 2031.

It means pension providers are faced with paying out for longer periods than estimated.

It is made worse by the fact the birth rate is falling while the number of people on pensions grows.

Recent drops in stock market returns for pension companies, which rely on them to pay policy-holders, has also made it difficult to fulfil obligations.

Q. What about the state pension?

A. At a maximum of £79.60 per week for a single person and £127.25 for a couple, the basic state pension is not expected to fund a decent retirement on its own.

Q. Have problems with private and occupational pensions deepened the crisis?

A. Successive governments have led a concerted effort to encourage people to save for their retirement and not rely solely in state handouts.

But in the early 1990s, mis-selling of pensions led many people to opt out of their existing occupational pensions, where their employers contributed, and set up private pension schemes.

These have turned out to be worth less than expected and has left many worse off than they would have been had they stuck to their original pension plans.

The mis-selling scandals also turned many people off pensions as the way to pay for their retirement, with some opting for alternatives such as ISAs or buying property.

The result was a massive under-investment in the pension industry.

Q. What does it mean for the average worker?

A. It means the amount of money needed to be put aside if they want to enjoy a comfortable retirement is rising all the time.

Q. What are the options to fill the black hole?

A. The Commission has identified a number of "unpalatable choices" to address the growing problem.

They include tax increases, a big increase in private savings or raising the age of retirement.

It has been estimated that income tax would have to rise by 17p in the pound for the Government to make up the cash and Chancellor Gordon Brown has previously ruled out tax rises.

Q. What do the opposition parties offer?

A. The Conservatives have published an eight-point plan to tackle the crisis. One of the key pledges is to restore the link between pensions and earnings rather than inflation, which would take more pensioners out of means-tested benefits.

The Liberal Democrats have proposed a "citizen's pension" based on residency rather than National Insurance contributions. Their plans are aimed to benefit women and the over 75s, who are deemed the neediest.