LONDON (AFP) - Britain faces a huge pensions crisis which must be tackled immediately to avoid future generations of the elderly seeing their incomes slashed by around 30 percent compared with those nowadays, an official report warned.
The sudden end of the "fools' paradise" of over-valued stock markets had sharply highlighted the extent of the problem, and urgent remedial action was now unavoidable, the government-established Pensions Commission said.
The Commission was set up two years ago to investigate the scale of the pensions problem in Britain.
Like in many developed countries, a far longer-living population, coupled with lower birth rates, has meant there are now not enough tax-payers to finance all those in retirement.
Britain faced "a huge challenge", said Commission chairman Adair Turner, a former leader of business lobby group the Confederation of British Industry.
"Longer lives and low birth rates will change dramatically the ratio of older to younger people," he warned Tuesday.
"The underlying problems have been getting worse for 20 years at least, but were masked by the temporary impact of the baby boom generation, by a failure to anticipate the scale of life expectancy increases and by the irrational equity market exuberance of the 1980s and 1990s."
The report warned that there were four "unavoidable choices" facing Britain, one or a combination of which had to be grasped.
These were: a steep rise in taxes or reduction in public spending to swell government coffers; a big increase in saving among individuals; later retirement; far lower pensions in the future.
"There are no alternatives to these four choices," the 528-page report said.
"If we do not raise tax rates, savings rates or average retirement ages, pensioners will on average suffer about a 30 percent decline in their incomes relative to average incomes between now and 2035."
Alternatively, if pensions were to be kept at the same relative level of prosperity, without any change to taxes or savings, the only other option would be to rise the average retirement rate for both men and women to almost 70 years, up from the current levels of 63.8 and 61.6 years respectively.
If the shortfall were to be met purely from public spending, it would see the percentage of Britain's national income used up on pensions rise from 9.9 percent now to 17.5 percent in 2050, the report said.
Britain had always had a relatively meagre state pension system compared with other developed nations, Turner said.
However private schemes were also now being hit "as the fools' paradise of overvalue equity markets has come to an end".
"A major shift of risk is occurring -- from the state, employers and the financial services industry, to individuals who are often ill equipped to deal with it," Turner warned.
Britain's new Work and Pensions Secretary Alan Johnson said last month workers would not be forced to work until the age of 70 before receiving state pension benefits, as proposed by the Confederation of British Industry.
Unions are concerned that their members may have to work longer in order to supplement state pension benefits, currently paid to men at 65 and women at 60.
Figures from the Trades Union Congress show that Britain's basic state pension of 79.60 pounds (116 euros, 142 dollars) per week is worth only 17 percent of national average earnings.