Around 12 million people in the UK face a retirement crisis because they are not saving enough for later life, a government report has found.

The ‘Turner Report’ report, commissioned by Tony Blair and conducted by former Confederation of British Industry (CBI) chief Adair Turner, has revealed a £57 billion gap between what people should be saving and what they are currently putting aside.

Business groups are growing more and more concerned by the shortfall, but have rejected trade union plans to force employers to contribute to savings.

The CBI estimates that, without being obligated, bosses have more than doubled contributions in the last seven years.

However the business group also warns that such generosity is hitting firms hard by eating into profit margins, weakening investment and job prospects.

Pensions have become an extremely sensitive political issue, as any new measures are likely to be unpopular as the Turner report proposes solutions such as higher taxes or forcing people to save.

Other options may also include a cash incentive of £30,000 for people who work until they reach the age of 70.

But the British Chambers of Commerce (BCC) believes the real solution lies in the phasing out of means testing and the introduction of a flat rate state.

It also says greater incentives should be offered to small businesses to contribute to employees' savings with feeling pressured to do so to the detriment of the company’s bottom line.

David Frost, Director General of the BCC, said: "The government should continue to reject calls for further compulsion. It would only serve to strangle employers and employees and there is little evidence that it would have the effect of increasing overall levels of savings."

The TUC hit back at proposals to reject compulsory saving, believing the voluntary approach to pensions has had its day.

Kay Carberry, TUC Assistant General Secretary, said: “The country faces a stark choice. We either pay more now or pay a high price later. For a decent retirement for all, either all employees and employers start paying enough into pensions, or everybody will end up paying more tax and working for longer.”