by Dr. Ros Altmann

(All material on this page is subject to copyright and must not be reproduced without the author's permission.)

The Chancellor had an opportunity to address Britain's worsening pensions crisis in his Budget. Sadly, he did not do so.

Policies to fight the recession have damaged pensioners and pensions, but Alistair Darling seems hopelessly out of touch. He even claimed that falling interest rates and inflation mean 'incomes go further'. Well, as far as pensioners are concerned, that is nonsense.

Falling interest rates have damaged pensioner incomes, not helped them! Millions of pensioners who were prudent enough to save for their old age, have seen Bank of England rate cuts wipe out their income. They generally don't have mortgages or big debts, so falls in interest rates have a negative, not positive, impact.

To be fair, the Chancellor did announce help for some poorer pensioners who have lost savings interest, but there seems no sense of urgency. Changes to pension credit will give an extra £4 a week to around half a million pensioners with savings of less than £10,000 - but not until November 2009. What do they do in the meantime? And those with over £10,000 saved up will still be assumed to be earning over 10% interest! And there was still no help at all for middle income pensioners whose savings income has disappeared.

While millions of pensioners have been struggling to make ends meet in recent months, borrowers and bankers were helped almost instantly. Pensioners cannot replace their lost income - they are often having to cut back on meals just to make ends meet.

Pensioners are not benefiting from falling inflation either. The Institute for Fiscal Studies has calculated that the prices of goods most pensioners spend their money on (like food, energy or council tax, rather than mortgage interest or ipods) are rising by over 6% a year.

Against this background, offering a 2 ½ % rise in the state pension next year is better than nothing, but hardly addresses the scale of the problems pensioners face. What we really need is a far better basic state pension, to give pensioners a dignified retirement without the current complexity and means testing penalties.

So at least the Budget offered a bit of help for some pensioners next year. What about measures to help pension funds and future pensioners? Oh dear!

The Chancellor talked of being guided by the principles of 'fairness' and 'opportunity'. He correctly pointed out the unfairness of giving one quarter of the £30billion spent each year on tax incentives for pension savings to the top 1½ %. His solution, however, was to take away higher rate tax relief on pension contributions for anyone earning over £150,000. At a time when we are already putting too little aside for retirement, how does that help the pensions shortfall?

This is nothing to do with 'fairness'. If it was really about fairness, the Chancellor would have redistributed the money taken away from top earners' pension contributions to help improve everyone else's pensions. But he didn't.

In reality, the measure was, however, guided by 'opportunity'. He spotted an opportunity to take money away from pensions and he grabbed it!

Of course, this isn't a one-off. One of Gordon Brown's first acts as Chancellor, back in 1997, was to remove dividend tax relief from our generous final salary pension schemes. Estimates suggest this has drained over £100billion from these funds.

And this has hit the pensions of millions of ordinary workers as, over the past ten years, nearly all UK private sector final salary schemes have closed. The Budget announcement to reduce tax incentives for high earners may mean further risks to private pensions. If company bosses lose interest in pensions, they will be less enthusiastic about providing for their workers. If the Chancellor had redistributed the money back into pension funds, then I could accept the logic, but to just take more money away from pensions does not solve anything.

The bottom line is that the pensions crisis could ultimately be even more damaging for our economy than the credit crisis.

Despite our rapidly ageing population, we are putting far too little aside for retirement. No longer can we dream of a comfortable old age. With the decline of employer pension provision, a meagre state pension and dwindling savings incentives, it is clear that the Government has not woken up to the seriousness of this crisis.

The Budget offered no new measures to encourage anyone to put more money into a pension, nothing to help companies struggling with their pension deficits and nothing to help those who are being forced to convert their pension funds into annuities at possibly the worst time in history.

Could this be because those in our political establishment have no personal stake in ensuring a decent pension for the general public. Politicians and top civil servants have generous, inflation-proof, recession-proof pensions, financed by the future taxpayers whose own retirement prospects have been ruined by recent events. If the Chancellor is really concerned about fairness in pensions, maybe he should give this some thought.