WHICH domestic issues will sway your vote in the general election? Will it be tax planning, or hunting perhaps? Or will you simply back the politician with the least insincere smile? Wherever your priorities lie, there is one issue that not one person with a right to vote can afford to ignore — pensions.

You might think that the looming pensions crisis does not affect you. You might be young and years from retirement, or you are older and have sensibly siphoned off cash into your own nest egg. But the twin problems of an ageing population and a critically low rate of saving will affect everyone. If nothing is done to address these issues, those who have not saved will face an old age of extreme poverty, while those who do save will face a crippling tax bill.

Adair Turner, the head of the Pensions Commission charged by the Government with examining pensions, concluded in his first report last year that we are facing “a pensions timebomb”. The report revealed that pensioner income will decline by 30 per cent over the next 30 years, leaving millions of today’s workers facing poverty in retirement. With fewer people of working age supporting more pensioners, the burden on public spending will be enormous.

Mr Turner said that we must work longer, save more or pay more taxes to avoid creating a generation of pauper pensioners. His words have finally forced politicians to grapple with the long-term consequences of inaction, but they are acutely aware of the vote-losing potential of taking action. The problem they face is twofold. How do you look after today’s pensioners, but ensure that tomorrow’s pensioners are not even worse off? The Government’s strategy for the past eight years has been to introduce means-testing to boost the income of poorer pensioners, while trying to increase saving by younger workers. The attempts to boost saving have not gone well. When Labour came to power, we were saving almost £10 out of every £100 earned, but we now put aside just £5.50.

The means-tested pensions credit has lifted the income of poorer pensioners, but critics say that the system is excessively complex, expensive to run and acts as a strong disincentive to saving. Both the Liberal Democrats and the Conservatives want to scrap means-testing and restore the link between the basic state pension and earnings. The basic state pension is linked with inflation, which means that its value is being eroded when compared with rising wages. Steve Webb, pensions spokesman for the Liberal Democrats, says: “We need to get the state pension right. That will improve incentives to save massively.”

Although the Government has been wedded to its policy in the face of strong opposition, there are signs that this conviction is beginning to waver. In an interview with The Times, Alan Johnson, the Work and Pensions Secretary, acknowledged the problems inherent in widespread means-testing.

The Government will postpone any major decisions about future state pension policy until after the Pensions Commission’s second report in the autumn. But the politicians must also come up with ways to promote private saving so that the increasing pensions burden falls on individuals and capital markets as much as on the State.

The Conservatives’ solution is the lifetime savings account. This would scrap the complicated system of tax relief and create an entirely new product. For each £1 you save, the Government would contribute cash — probably £1 or 50p, depending on earnings, although the details have yet to be finalised. Unlike a pension, savers would be able to access their cash before retirement. The Conservatives are also considering plans to boost the tax incentives for employers who provide high-quality pensions.

David Willetts, the Shadow Work and Pensions Secretary, has set out an eight-point plan to reform the state system and boost private savings. On the lifetime savings accounts, he says: “All the evidence is that matching contributions is a more vivid and valuable way of rewarding saving. It’s difficult asking a 25-year-old to put away money which will be tied up for 40 years. Increasingly, pensions saving will be something that is done in the second half of life. But just getting people into some sort of early savings habit would be a major step forward.”

The Liberal Democrats want to encourage trust in pensions again after successive scandals have destroyed faith in the private sector. They want to introduce a simple pension from National Savings & Investments, which would use its trusted brand to encourage savings.

But none of the parties will commit itself to raising the state pension age — the one measure that many industry experts believe could be a solution to the looming crisis. Telling the electorate that it will be forced to work an extra five years before retiring is hardly a vote winner.

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