People are being urged to save more for their retirement amid fears of pension shortfalls

Most people look forward to the so-called "golden years" of retirement - when, in theory, liberated from the slog of going to work every day, they can get up when they feel like it and do what they like all day.

Rather fewer have an idea about how much they will have in retirement to pay for all this.

And fewer of us still have any idea how much the promises made to workers about their income in retirement will cost.

Well, the Office for National Statistics (ONS) has had a go at working out the total. And, at this point, you might to sit down with a stiff drink.

At the end of 2015, the ONS estimates, "total accrued-to-date gross pension liabilities of UK pension providers in respect of employment-related (workplace) pensions and State Pensions" were £7.6trn.


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In figures, that's £7,600,000,000,000. That's up £1trn since 2010.

Of this, the vast majority - some £5.3trn - is owed by the Government.

Future State Pensions account for £4trn of this sum. To that can be added pensions promised in the future to current and former public sector workers.

The smaller chunk of outstanding pension liabilities, the other £2.3trn, represents payments promised in retirement to people working mainly in the private sector.

The good news, as the ONS points out, is that this is money owed to UK households or Britons living in retirement overseas.

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The bad news is that a lot of this money, mainly to meet promises made by the Government, has to be found from somewhere as it has not been provided for already.

The £4trn in future "unfunded" State Pension payments, the term employed by the ONS, is probably most troubling.

The key word here is "unfunded" - because the State Pension operates on a so-called "pay as you go" basis.

Contrary to popular belief, it is not paid for by the past National Insurance contributions of a worker, but from the taxes of current workers.

Of the other pension liabilities owed by the Government - and, by extension, taxpayers - a further £917bn worth of pensions promised to public sector workers must also be paid for from general taxation.

Just £334bn worth of pensions promised in future to public sector workers are covered by money already set aside.

Sir Steve Webb, the former pensions minister and now director of policy at the life company Royal London, has been crunching the numbers.

Image: Steve Webb was pensions minister in the coalition Government

He says: "The numbers in this report are truly mind-boggling.

"Today's population has built up £7.6trn in pension promises but has only set aside about a third of that amount to pay for them. The rest will have to be financed by tomorrow's workers.

"If we are to have a meaningful debate about how we pay for an ageing population and about fairness between generations, figures like these need to be published on a regular basis and should inform policy-making."

Almost as troubling is the report's revelation that, as at the end of 2015, 36.5% of employees have no pension and will be entirely reliant in their retirement on the State Pension.

A further 28.3% of workers - mainly in the public sector - enjoy defined benefit of "final salary" pensions, where the retirement income reflects an employee's earnings during their career and a further 16.3% have defined contribution or "money purchase" pensions, where the retirement income reflects the savings put aside by the worker and their employer.

Another 17.5% of employees are in a Group Personal Pension (GPP), an increasingly common arrangement, where employees of an employer or group of employers take part in a personal pension on a group basis.

The employer sets up the GPP and contributes to it - but, ultimately, the pension paid in retirement again depends on the sums saved by both employee and employer and the contract is between the worker and the life company providing the pension.

That figure of 36.5% who have no pension is likely to come down in coming years.

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Since 2012, "auto enrolment" - where employers are obliged to set up a workplace pension scheme in which workers automatically become a member unless they opt out - has seen 9 million workers join schemes, many of whom might not previously have had a pension.

The process has only been rolled out over time, starting with bigger employers, so the number of people with no workplace pension should fall.

Another crumb of comfort is that, in 2010, future pension promises made by the taxpayer represented 243% of GDP. By the end of 2015, it had fallen to 215% of GDP.

Still. £5.3trn. It is, as Sir Steve says, a mind-boggling sum.