Britain’s workers can expect to receive the worst state pension of any major country, according to a report by the developed world’s leading economic thinktank.
The study by the Organisation of Economic Co-operation and Development (OECD) suggests full-time workers in the UK do relatively poorly.
It found that the average pensioner can expect to receive just 29 per cent of what they earned at work.
Only South Africa – which isn’t a member of the OECD – is less generous.
The report said, therefore, that the expected “net replacement rate” of 29 per cent for the UK would “be the lowest of any OECD country”.
The UK figure compared with an average of 63 per cent in other OECD countries, and more than 80 per cent in Italy and the Netherlands.
The pension systems in Japan, Germany, France, the United States, Canada, and Ireland all also pay out a higher proportion of working income.
However, once “voluntary” pensions – such as auto enrolment or workplace pensions – are taken into account, the UK model fares better in comparison.
With these additions to the state pension, the OECD said, the average income in retirement for pensioners rose to just over 60 per cent of former career earnings, or just below the OECD average.
The OECD said the UK had $2.2tn (£1.6tn) in private pension assets, equal to 95 per cent of GDP, one of the highest levels of private saving in the world. While the US, Switzerland, the Netherlands and Denmark had figures above 100 per cent of GDP, in France and Germany, where state pension entitlements were much higher, private pensions were worth less than 10 per cent of GDP.
Reacting to the report, the TUC general secretary, Frances O’Grady, said: “Working people in Britain face the biggest retirement cliff edge of any developed nation. We are letting down today’s workers if we can’t provide them with a decent retirement income.”
“However, on some measures Britain’s pension system is performing better than those of many OECD countries. The organisation noted that the new single-tier pension (currently £159.55) would be worth 30 per cent more than the old state pension (currently £122.30) but added “there is a long transition period and current retirees will not see a difference.”
The UK also fared well on employment rates among older adults, and with the introduction in 2012 of the auto-enrolment scheme the downward trend in private workplace provision had been reversed. While the UK had the worst “mandatory” entitlements, such as the state pension, it had a much bigger private pension system.
A Department for Work and Pensions spokesman said: “We have taken decisive action to address our changing population through a new, generous state pension … 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.”
Caroline Abrahams, charity director at Age UK, said the report was a “wake-up call”.
The state pension remained a vital tool in the fight against pensioner poverty, Abrahams said, “but the government must look at how auto-enrolment into workplace pensions can work with the state pension to deliver a decent standard of living in retirement for everyone”.