Debts that put a decent pension out of our reach

Millions of workers burdened by credit card debts and soaring housing costs are unlikely to save enough to avoid poverty in retirement, union leaders will tell a rally in central London today.

Middle-income earners who, 10 years ago would have expected to enjoy a comfortable retirement, have found their savings ravaged by falling stock markets and lower interest rates. Increases in life expectancy have also forced deep cuts in retirement income.

Union leaders are concerned that reforms to occupational pension schemes due to take effect next year - which ministers believe will restore confidence in pensions - will have little impact on saving habits.

Even those workers who already make regular monthly pensions payments may cut back on their contributions to cope with rising mortgage and petrol costs.

Brendan Barber, general secretary of the Trades Union Congress, says he fears the situation is likely to get worse rather than better, despite the government's reforms. Examples of cost-cutting, for example, have been put forward by the rightwing thinktank, the Adam Smith Institute, which has argued for the retirement age to be raised to 70.

In a separate move, major insurance companies have lobbied for a hike in the charges on stakeholder pensions, which are fixed at 1 per cent. This week the government said charges could now be set at 1.5 per cent, adding to the costs of running a private pension.

Government reforms centre on the simplification of the tax regime and protection for occupational schemes that go bust.

Ministers hope workers will begin saving, knowing their pension pot will no longer be lost when their employer goes bust. But many workers report that safeguarding pension schemes is not enough.

Lynda Hance, 46, a freelance housing consultant from London, is typical of workers who cannot afford to pay enough to gain a decent pension. Until eight years ago, she worked for a number of London boroughs and contributed to the local government pension scheme. Her pension was frozen when she took redundancy. For a while she saved nothing - going freelance meant that in the early years, all her spare cash was being ploughed into her business.

Concerned her pension was not going to be enough to live on, two years ago she took out a private plan, but was unable to pay in the £250 her financial adviser tells her she needs to contribute. She may end up with little more than the £7,000 a year promised by the local government pension.

She says she realises she has left it too late, and says that all she can hope for on retirement is that with her mortgage paid off, her outgoings will not be too high.

Helen Naylor, 25, says: "I know pensions should be a priority - my dad is always nagging me to get one, but I still have to pay my student loan and I want to buy a house."

Ms Naylor works in London for a political campaign group as a research assistant.

She says she wants to join her employer's pension scheme when she is eligible, but is shocked at the sums needed.

The cost of buying a pension has risen dramatically in recent years.

Ten years ago a pension pot of £100,000 would have bought an income of £14,000 to £16,000 a year. Now that level of savings will buy an income of £5,000 to £7,000 a year.

Despite the deep cuts in pension annuities, Deirdre Smith, 54, is working hard to claw back the years she lost when she looked after her children.

Ms Smith, who works for a building society in Derby, is a divorcee with no claim on her husband's pension provision. She gave up a job in the Inland Revenue when she had her first child in 1978 and was out of the job market for the next 12 years.

When she returned to work, it was on a part-time basis. Part-timers were prevented from joining the pension scheme until a few years ago when the hours restrictions were lifted.

Ms Smith has since been able to buy back her lost years at the building society, but can do nothing about the years she spent out of work bringing up her children.

Case study: Other things come first

Ingrid Shields, 33, is finding it tough saving for her retirement. "I wasn't worried about pensions before, because my employer was a big company and we all felt looked after. "Then I moved to a small company and found that I needed to set up my own pension. I was shocked to find I needed to put in 15 per cent of my earnings to match my old pension. That would mean finding £250 a month."

Ms Shields works as a graphic designer in a small design consultancy in London. Her previous employer offered a generous final salary pension.

She has worked for her new employer for a year and is concerned that she is missing out on important pension contributions. "I am trying to save to buy a flat, and save to get married next year. It's too easy putting off a pension when you are doing that. As it is not going to take effect for another 30 years, it doesn't seem like a priority.

"But I will need to start some time. Having children must make the situation really tough. I can't see how you can have a family in London and save for a pension." The firm employs only four staff, which brings it under the threshold for stakeholder pensions. All employers with five or more staff must offer a low-cost stakeholder pension, though they are not obliged to make any contributions.

Ms Shields believes occupational pensions should be a legal obligation on employers and staff.

"Why else would someone save in a pension. They might think they'll be dead before they claim it and not bother, but we know people are living longer and need a pension."

· The TUC Pay Up For Pensions march will assemble today at noon outside Embankment Tube station to march to the rally in Trafalgar Square.
Although she is now contributing to the final salary scheme, she knows she will never be able to catch up.