Three-quarters of today's workers will end up on means-tested benefits because of the pensions crisis, a leading think-tank has warned.

The Pensions Policy Institute said the government's current pensions Green Paper, or discussion document, had failed to address the problem of state pensions that shrink as the years go by.

The new means-tested benefits for the poorest pensioners go up every year in line with earnings, it said.

But the state pension climbs more slowly, in line with prices.

PENSIONS IN CRISIS

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This means the state pension will have shrunk so much by the time today's workers retire, most people will have to claim the means-tested part.

Most of a current pensioners' income comes from the state, it said.

Yet ministers assumed that individuals would do more towards saving for retirement - when in reality many people are not doing so.

In fact, said the PPI, saving into private pensions had "stalled", with people starting later and saving more irregularly.

The government must reform the state pension if it is to avoid tomorrow's pensioners being worse off than this generation's, it said.

The PPI report was welcomed by Age Concern which agreed there was a need to debate the state pension, which was missing in the pensions Green Paper.

There is a potential crisis of lower incomes that will be apparent only in the long-term PPI

Gordon Lishman, Age Concern England's director general, said: "The government must review the role of the basic state pension to ensure it remains the foundation of retirement income.

"The basic state pension, now worth 15% of male average earnings, is expected to be worth as little as 7% by 2050."

'Potential crisis'

Alison O'Connell, director of the PPI, said: "Clearly there is no shortage of pension headlines at the moment.

"But behind the obvious short-term challenges lies a potential crisis of lower incomes that will be apparent only in the long-term.

"At the heart of the issue are problems in the structure of state pensions."

Shadow work and pensions secretary David Willetts said: "The government has been wrong to exclude reform of state pension benefits from the many consultations.

"It is not too late for the government to change its mind."