UK retirees expect to receive 29% of working salary as pension
The Organisation for Economic Co-operation and Development (OECD) has today published a report looking at the pension systems of countries around the globe.
It found that in the UK, full-career average earners can expect 29% of their salary as income in retirement, based on mandatory income, such as the state pension.
In comparison, the OECD average is 63%.
It noted that the UK is ageing quickly as the number of people aged 65 and over for every 100 people of working age will rise from 30 today to 48 in 2050. Poverty among older people is high in the UK with 18.5% of those aged 75+ having incomes below the poverty line. Most of them are women, due to the low level of the state pension.
While the introduction of the new flat rate state pension should help as its 30% higher than the old basic state pension, the OECD said there is a long transition period which means current retirees won’t see a difference.
Further, the sharp rise of income disparities during the 1980s means that inequalities in later life will rise as generation X (those born 1960s – 1980s) approach retirement.
On a positive note, the OECD said following the introduction of auto-enrolment in 2012, there has been a reversal in the downward trend of workplace pension participation, rising from 42% in 2012 to 70% in 2015.
Stephen Lowe, group communications director at Just, said: “The UK has the highest dependence on private pensions. Average earners reaching retirement can expect a pension worth only 29% of their working income from State and other mandatory schemes, compared to an average replacement rate of 63% for the 35 OECD countries.
“The OECD notes that pension freedom rules allowing cash withdrawals from private pensions may lead individuals to spend money lump sums early or underestimate their life expectancy through drawdown, leaving them with limited resources in old age.
“It is clear that the standard of living UK pensioners enjoy depends to a large extent on how much they save, how long they work and the decisions they make at retirement.”
A DWP spokesperson, said:
“We have taken decisive action to address our changing population through a new, generous State Pension, retaining the Triple Lock and protecting the poorest through Pension Credit – reducing pensioner poverty close to historically low levels.
“But there’s always more to do. Thanks to automatic enrolment, around 11 million people will be newly saving or saving more into a workplace pension by 2018.”