I have just retired after nearly 36 years working in pensions, and I can't remember a time when pensions were in worse shape than they are now.

When I started my career in 1972 I automatically entered my employer's pension scheme. I didn't have to think about it, because joining the scheme was a condition of my employment.

It was a good scheme. For each year of service up to age 60 I would get a 60th of my final salary, and the employer paid the whole cost. The downside was that, if I left, my pension would only be preserved if I had completed five years' service, and there would be no inflation-proofing – a serious problem when inflation was in double-digit percentages.

Over the years there have been changes in the law to ensure better preservation for early leavers and better inflation-proofing for everyone, but that pushed up the cost of the benefits. When you remember the large increases in longevity and reduced investment returns, that all adds up to massive increases in the cost of a good final salary pension. If 10% of pay was about the right funding payment in the 1970s, that probably means 30%-plus for a similar scheme today. No wonder private sector employers are switching to money purchase schemes where their only cost is the contribution they agree to in advance.

A lot of nonsense is talked about accounting standards for pensions, as if it is accounting standards which are driving employer actions. If that is truly the case, it means the finance director doesn't understand or can't explain the issues. The cost of a pension is mainly determined by the generosity of the benefit and how long the pensioner lives to receive it. The cost is not determined by the assumptions and methods used for funding or accounting purposes.

If you cut through the jargon about funding and focus instead on solvency of pensions, you see a really scary picture. Most private sector final salary schemes in this country are spectacularly insolvent, even though they may claim to be "fully funded" or nearly so.

Being solvent is a simple concept: it means you have enough money to secure your accrued liabilities in the open market. Most final salary schemes rely on the willingness of the employer to make whatever contributions are needed in future. If we are in for a nasty recession, you had better hope your employer weathers it well, because the pension's lifeboat, the Pension Protection Fund, is not all it seems – read the small print.

This all went wrong in the early 1990s. Final salary pension schemes in the private sector were generally solvent up until then. The Major government legislated for weaker standards than suggested to it, apparently after intense lobbying from the privatised industries. The financial discipline of pension solvency was lost.

Earlier, the Thatcher government had outlawed joining the pension scheme being a condition of employment, and introduced Personal Pensions. The great Personal Pension mis-selling scandal followed. There is nothing wrong with Personal Pensions, in the same way that there is nothing wrong with alcohol. It is the way you use them that determines whether they are good or bad for you.

When Labour came to power in 1997 they had a radical pension agenda. They introduced a major stealth tax on funded pensions, and hugely expanded the role of means-tested state benefits in old age. Now it has become clear that the stealth tax accelerated the decline of funded pensions in this country, and it is only public sector pensions which thrive, at taxpayers' expense. The prospect of means-testing in old age is an active deterrent to pension prudence among lower-earning workers, and advisers dare not try to sell them pensions for fear of mis-selling accusations. Yet the Government is planning to compel by default those same workers to join pensions.

On the other hand, few people will enjoy having to live in old age on state benefits alone. So the Government is in a dreadful mess on pensions, and the mess is largely of its own making.

So what can be done to get us out of this awful hole? I don't agree with those who say the problem is insoluble. If we look past the current economic problems (and remember pensions are very long term), we ought to be able to expect the economy to grow at somewhere between 2% and 3% a year on average. That means it is a question of how we can establish decent pensions, not whether we can afford to do so. If the Government can sort out Northern Ireland, it can sort out pensions.

We need to phase in better state pensions and gradually reduce the role of means-testing. If people know that it pays to save for retirement, instead of being penalised relative to those who don't save, that would be a big step forward.

We need to gradually improve the solvency of the remaining final salary schemes, and hope that not too many sponsoring employers go bust in the meantime.

Public sector workers need to accept that taxpayers don't have bottomless pockets to fund their pensions, and be prepared to be flexible when the crunch comes, as it soon must.

Finally, we need to press on with the financial education agenda. We can't expect people to do the right thing if they don't know what that is.

Stewart Ritchie is past president of the Faculty of Actuaries and has recently retired as pensions development director at Aegon Scottish Equitable