The Government has announced proposals to reform the pension system but do they go far enough to tackle the deepening crisis? Christen Pears reports

As many as three million people are not saving enough for their retirement and pensions experts believe the national shortfall could be as much as £27bn.

Yesterday, the Government unveiled a shake-up of the pensions system, designed to halt the crisis. Introduced under the banner, Simplicity, Security and Choice, the Green Paper, includes scrapping the compulsory retirement age of 65 and simplifying the tax system for pensions. Workers who defer drawing their state pension for up to five years will be offered cash incentives, individuals will have easier access to pension information, and a new watchdog will be created to restore faith in the pensions industry.

Andrew Smith, Secretary of State for Works and Pensions, who outlined the proposals, said: "People living longer is good news but if people want to see continuing rising standards of living in retirement, they either have to save more, work longer or do a mixture of both."

Pensions expert Nick Millar, managing director of Darlington-based KWM Consulting, agrees but believes the proposals fall short of the radical measures needed to address the crisis.

"The basic problem is that people are living longer. People who retire at 60 or 65 may have another 20 years or more ahead of them and many of them simply aren't saving enough money," he says. "The thrust of the Government's proposals seems to be to give people more information about pensions in the hope that it will frighten them into saving but I think they are being rather nave."

Currently, all pension providers are feeling the pinch, whether that is the state, companies or private schemes. Many companies are no longer able to afford final salary pension schemes, while individuals are finding the money they have paid into personal pension funds is often not enough for them to enjoy a comfortable retirement.

"We all know that something radical has to be done but one of the major issues the Government has failed to tackle is that of compulsion," says Mr Millar. "Many people believe that compulsory contributions by both employers and employees are inevitable but the Green Paper has avoided the issue. The framework is in place with stakeholder pensions but the Government seems to be worried about the political implications and isn't tackling the issue head-on."

Many commentators expected an increase in the state retirement age but this was not included in the Green Paper. It did, however, propose raising the pension age of public service workers from 60 to 65. Mr Millar says: "This has far-reaching implications. Currently, public sector workers such as teachers, doctors and nurses, can retire at 60 and still have full pension benefits. This puts a stop to that."

The Green Paper does, however, advocate the abolition of compulsory retirement. "The Government is hoping that people will keep working, not only so they won't be drawing a pension but also so they carry on paying taxes," says Mr Millar. "The maths of pensions is very simple. The longer you work, the longer you pay into a pension scheme and less time you will draw on that scheme."

The Government believes its Green Paper can ease the crisis but Mr Millar is sceptical. He says: "I don't think these proposals are as radical as they could and indeed should be. We may find that we're still facing the same problem a few years down the line."