The insecure are about to become a real political force

Last week it was announced that annuity rates have fallen again. Few people under 40, or even 50, will have noticed the story. The young expect to live for ever. For anyone over 50, however, and ineligible for a guaranteed pension, this was serious news.

Our likely income in old age has shrunk as actuaries have revised life expectancy estimates upwards. A pension pot of £100,000, which in 1990 would have bought a retirement income of £15,000 a year, now generates barely £7,000.

Provision for old age will soon become one of the most contentious and divisive issues in British society. Hardly a day goes by without a new revelation of shortfall in some company's pension fund. A social and economic gulf is emerging between a minority of people whose future is protected and a majority for whom the prospects look alarmingly uncertain.

During the election campaign Gordon Brown dismissed talk of urgent action. He said any radical proposals on pensions would have to go into a future party manifesto to be offered for public endorsement at the polls before they were implemented.

By this he meant that any credible solution will mean compelling people to surrender extra money during their working lives to fund old age. He wants to be sure of having won a general election as prime minister before accepting any responsibility for a measure so assuredly unpopular. This is sensible politics, bad government.

David Blunkett is currently sitting under a wet towel, considering the future of pensions, but interim government policy is hardly encouraging. In April ministers hastily abandoned a pledge to raise the public-sector retiring age to avert a threatened strike by workers.

While just 3.6 million of 22.5 million private-sector employees are in final-salary schemes, 5 million out of 5.7 million public-sector workers are. Union leaders last week restated their commitment to resist any change in provisions for their members.

Once a good claim could be made that since state employees were poorly paid they deserved the compensation of secure index-linked pensions. Today, however, many public-sector workers have caught up with their private-sector counterparts. For instance, the old convention that BBC staff must expect to earn less than their commercial brethren has been buried.

Today's top people at the Beeb are rewarded generously, if not extravagantly - and retain the security of a final-salary scheme. Several long-serving BBC moguls have retired in recent years on pensions that would be deemed munificent anywhere else except parliament. The pensions privileges that MPs have voted to themselves are, of course, a disgrace.

In some public-sector jobs - university teaching springs to mind - earnings remain deplorably low. But in most others, if workers keep their final-salary schemes and retirement at 60, in the next generation they will become an exceptionally privileged section of society. This must rouse resentment among others without a safety net, which means the bulk of us.

Adair Turner, the government's pensions supremo, suggested this month that university graduates should keep working until they are 70, to make up for their special advantages in life. This was dismaying because it was silly - a poor omen for Turner's final report, due later this year.

It is all very well to talk glibly about raising pensionable ages. Nobody has yet explained what many people will do in their extended working lives. Some are capable of carrying on for years past 60: doctors, lawyers, writers, artists, desk workers.

But nobody can reasonably expect manual workers to keep going as their physical strength declines and all the usual ailments of late middle age set in. Even more significant for industry and commerce, it seems absurd to suggest that people in executive roles should be given a right to keep them after 60.

Most of us slow up, some become burnt-out cases. It is already a problem for many businesses that, amid relentlessly changing markets and technologies, key jobs need the energies and imaginations of 30-something-year-olds, not tired sexagenarians.

Too many office-holders already cling to them for too long. It seems a formula for commercial atrophy to give any corporate employee a statutory right to keep a top job, salary and perks well into his 60s. This is not ageism but common sense. Granted the likelihood that we shall have to work longer, we cannot all expect to go on doing the same things, for the same rewards.

Many people in their last working years will have to do humbler jobs than they have been used to, for less pay. This will be hard for fat cats to get used to, but it seems inevitable and right.

We know that we shall also have to save more. The government will be tempted to propose inducements for doing this voluntarily, because compulsion could cost votes. Yet experience shows that if people are given a choice about saving, they do little. At 25 or 35, old age is so remote that it seems absurd to waste precious income preparing for it. The poor cannot save anyway, which is why Gordon Brown has seemed naive in offering them incentives to do so.

The better-off in society, which means most of us, will have to be made to save, to put aside a substantial part of income through their working lives. The government will apportion as much pain as possible to employers rather than employees. Yet even the chancellor cannot claim to support enterprise if he burdens corporate costs much more heavily. In the US, General Motors has been brought to the brink of collapse by its pension commitments to employees.

My favourite City editor thinks that sorting the pensions issue may prove less politically embarrassing than the government fears, because most of the grief will fall upon younger employees, who will hardly notice because old age seems so remote to them.

My friend's cynicism is usually justified, but I doubt his judgment on this one. The scale of the problem seems so enormous, the potential cash shortfall so serious, that any plausible remedies must create resentment among millions of people, especially those who see goalposts being moved as they approach retirement. This will be intensified if public-sector workers become uniquely privileged pensioners.

For centuries, extending the natural human span has been thought an important objective of a civilised society. It is ironic that its achievement now seems such an embarrassment. Over the next generation we seem likely to discover that living longer is less fun and vastly more expensive than anyone imagined.

Tony Blair's government deserves sympathy in addressing such a chronically thorny issue. It will forfeit this only if it follows its instinct on so many difficult problems, by postponing decisions for another day or - as Gordon Brown wishes - for another parliament. An awful lot of people out there are approaching old age, feeling insecure and scared with good reason. They need reassurance. Unless they get it, their anger will become a real political force.

· Max Hastings is a former editor of the Daily Telegraph and the London Evening Standard