THERE is, in my view, only one test that matters for the Pensions Bill that work and pensions secretary Peter Hain unveiled last week: will it give more people a more comfortable retirement? The answer is no, not without a huge cut in our standard of living while we are working.

Hain claims that, when the bill becomes law in five years, up to nine million people will put by an extra £10 billion a year in new or additional savings. Compound interest and tax relief could make that worth as much as £2,000 a year, which over a career could transform many people’s retirement prospects.

But there are two snags. The first is that saving and economic growth are, in the short term at least, two sides of the same coin. The more we save, the less we spend, and the wheels of the economy spin more slowly. That means lower profits and dividends from the companies in which pension funds invest, reducing the amount available to pay pensioners.

Longer term, I accept, more saving leads to cheaper borrowing costs, which encourages investment in new enterprises, buildings and equipment, and that is good for growth. But for the foreseeable future consumer spending is the driver, and that will take the first hit from more money being stashed away in pension pots, whether by individuals or employers.

That trend, combined with our new-found ability to live longer, could prompt a spiral of even more saving to combat lower returns and try to ensure a decent retirement income.

The second snag is a provision in the Pensions Bill to let employers with a defined-benefit scheme partly off the hook.

For the eight million in such schemes, benefits must be increased in line with retail-price inflation, up to 5% a year. But, from 2009, the commitment to those who resign drops to no more than 2.5% a year. Standard Life calculates that, for a 45-year-old who departs after 15 years, this change could cut the pension by a quarter.

This measure will make it even more attractive than it is already to stay in a defined-benefit scheme, cutting job mobility.

Increasing the number of bored timeservers who stay put will be another drag on economic growth.

Hain says that seven million of us are not saving enough at present. They are presumably among the half of the population who, according to Abbey bank, have not the foggiest idea how much they need to give them the sort of retirement they would like.

Too many of us are gambling that the government will provide, however great the burden of maintaining a growing army of pensioners. It is a very risky bet.

False dawn

THE Bank of England’s interest-rate cut brought joy to stock-market investors, but I fear it could be short-lived. Borrowers, private or corporate, will be glad to see the pressure on their outgoings relieved, and there may be more cuts to come. However, it was an ominous sign on Tuesday that the Financial Services Authority (FSA) decided to put forward one of its directors to spell out the gravity of the credit crisis.

Clive Briault, the FSA’s retail managing director, told the Council of Mortgage Lenders’ annual conference: “There is a very real prospect that conditions will worsen further into next year, in terms of both liquidity and credit risks. Firms should therefore be considering contingency plans against the worst outcomes.”

Despite the actions of the Bank of England, I believe the FSA warning is more significant.

Bank governor Mervyn King has already expressed his concerns about the outlook, and those in the know seem resigned to much if not all of next year being grim.

And that is without the forecasts of the perceptive Colin McLean, managing director of SVM Asset Management, who is tipping the oil price to reach $120 (£59) a barrel and – not entirely coincidentally – a US recession. That is still a minority view, as all the best predictions initially are.

The good news is that share prices on both sides of the Atlantic have stayed remarkably buoyant. You can, of course, take this to show that the pessimists are wrong, but I suggest it would be prudent to take advantage of that buoyancy to move at least some of your portfolio into the sort of defensive, income-producing shares I mentioned in August, such as British American Tobacco, Centrica and Diageo.

Child’s play

THE annual survey into child-rearing costs by Liverpool Victoria, Britain’s biggest friendly society, shows that the cost per child is heading relentlessly towards £10,000 a year, taking into account furniture and holidays as well as food and clothing. The demands are rising faster than inflation, pushing some couples into forgoing a family altogether.

If you are going to make serious inroads into that bill, the items to attack are the labour-intensive babysitting, childcare and education, which eat up more than half the total.

But it makes no financial sense for high-earning parents to do their own childcare, and commitment to a particular school is not lightly sacrificed.

What’s left? Holidays, toys, recreation and pocket money take up only a fifth of the cost, but maybe they have to bear the brunt of cuts. A tough call.