[Skip to content]

Sign up for our daily newsletter
The Actuary The magazine of the Institute & Faculty of Actuaries
.

UK state pension ranked worst in OECD

British pensioners relying on the government can expect a lower percentage of their working salary as retirement income than those from any other country in the OECD.

05 DEC 2017 | CHRIS SEEKINGS
Web_olderman_shutterstock.jpg .jpeg
Pensioners set for income drop ©Shutterstock

A report released today by the organisation reveals future retirees in the UK will receive 26% of their pre-retirement income from the state pension and other mandatory schemes.

This ‘replacement rate’ is the lowest in the OECD, and significantly below the 63% average across the 35 countries – highlighting the dependence of British workers on private pensions.

This is thought to be largely responsible for the 18.5% of people aged 75 and over living in poverty in the UK, compared with 11% among the country’s whole population, with women most affected.

“People who have had sufficient income during their working lives to save, buy their own home, and contribute to private pensions, have relatively good incomes compared to younger generations,” the report says.

“However, retirees without such additional sources of revenue are left with few resources – this is reflected in the poverty rate and high income inequality in the UK.”

The research shows that a full career of private saving could boost average replacement rates for British retirees by approximately 30%, and that a new single-tier state pension should help.

However, it also reveals that low earners will have rates of just 52%, compared with an average of around 73% in the rest of the OECD, with only Mexico and Poland having lower rates for their poor.

In addition, a sharp rise of income disparities during the 1980s is likely to result in inequality for older people rising further as generation X approaches retirement in the UK.

This is expected to be exacerbated by allowing partial lump-sum withdrawals and reduced annuities, along with a potential increase in opt-outs from auto-enrolment into pension saving.

“Individuals may be inclined to spend the lump sum early or underestimate their life expectancy through the drawdown period, leaving them with limited resources at very old age,” the report continues.

“The well-publicised NEST scheme should help to increase levels of financial literacy and awareness of the need to save for retirement, thereby reducing the risks.”


Sign up to our free newsletter here and receive a weekly roundup of news concerning the actuarial profession