Millions of people face a "bleak old age" because they are falling through the cracks of private sector pension provision, a review suggests.
The Workplace Retirement Income Commission says 14 million people are not saving into a workplace pension scheme at all.
And those who are in a scheme often get charged too much for a service that is complicated and inefficient.
Pensions Minister Steve Webb described the report as "a wake up call".
Lord McFall, the Labour former chairman of the House of Commons' Treasury Committee, was commissioned to investigate the state of the sector by the National Association of Pension Funds (NAPF).
'Ignoring tomorrow'
The review, which was funded by, but independent of the NAPF, found that workers would not bother to save for a pension unless they were getting a better deal.
"Too many people are stuck in a complex, costly and inefficient system that relegates the consumer's interest to second place. On top of that, they simply are not saving enough to secure a decent retirement," said Lord McFall.
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They are right to pose hard questions about whether the pensions industry is currently serving us well”
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Nigel Stanley
TUC
"People need to get more bang for their buck or they are not going to bother with a pension. Instead, they will end up spending today, ignoring tomorrow and scraping by in poverty on the state pension. The complacency of many in the pensions industry is alarming."
The review did not study public sector pensions, which are subject to plans for significant changes by the government.
Changes, being introduced in 2012, will see workers automatically enrolled into a pension scheme, unless they earn a very low wage or opt out themselves.
The review said the government should consider increasing the minimum amount that is contributed by these workers. It also made recommendations about:
- Charges - which it claimed were too opaque. It said bigger, lower-cost pension schemes should be able to operate
- Annuities - which it said should be more flexible. It suggested people should be directed to an annuity price comparison site
- Risk - which should be mitigated for those in defined contribution schemes, according to the review
- Cultural change - which should encourage saving
- Stability - with a commission set up to oversee long-term pension policy
Mr Webb said the review gave "a very serious warning and a wake up call". He said that unless people started saving now for their retirement they could find themselves enduring "a pretty meagre existence" in the future.
Age UK "warmly welcomed" the report. "Government action is critical now to ensure those with small pension pots do not lose out any longer," said charity director Michelle Mitchell.
The government's coalition document pledged to "reinvigorate occupational pensions". The NAPF estimated that 19 million people out of the total workforce of 28 million were in the private sector.
A Department for Work and Pensions spokeswoman said it welcomed "all contributions" to the debate, and insisted that making the private pensions sector fit for purpose was "a priority for the government", especially in the run up to automatic enrolment.
Living longer
"We have already taken significant steps to reforming the system," she said. "We are consulting on simplifying the state pension to provide a clear foundation for saving, and people will start to be automatically enrolled into a workplace pension from October 2012, helping millions to save for the first time.
"We are working closely with the pensions industry on many of the issues raised in the report."
Ros Altmann, director general of Saga, said: "We need to reform the state pension and we also need to help people understand that pensions are not magic.
"If you don't save while you are earning, what are you going to live on in retirement? Either you are going to be very poor or you're going to have to keep working."
Nigel Stanley, head of campaigns at the TUC, welcomed the review, saying it offered "many worthwhile policy suggestions".
"They are absolutely right to say that in the long term contributions have to increase if people are to get a decent income in retirement and they are right to pose hard questions about whether the pensions industry is currently serving us well," he said.
The pensions landscape has been changing as people in the UK are living longer and many occupational pension schemes have become less generous.
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