The UK’s retirees are facing the greatest drop in income when they stop work compared with pensioners in other developed countries, research from an influential think tank has revealed, as it warns that further reforms are needed around the world to cope with the financial consequences of ageing populations.
The Organisation for Economic Co-operation and Development (OECD), an intergovernmental economic organisation, has revealed that British pensioners receive only 29 per cent of the average working wage from state schemes once they retire.
That’s less than half the 63 per cent typical proportion received in other member states, which include Mexico, Latvia, and Korea as well as the USA, Australia, New Zealand and the Nordic countries.
In Turkey, retirees receive an average of 102 per cent of the typical working wage once they stop work.
The calculations, designed to compare pensions systems around the world, are based on the mandatory components of pension savings in each country, in other words the state pension arrangements.
The OECD concludes that Britons must be offered strong incentives to save more, with private pensions, particularly in light of automatic enrolment well placed to fill the gap. Meanwhile, pension freedoms are now pushing more savers to take responsibility for managing the effect of longevity on their finances.
“Pension systems around the world are shaped by a combination of social, economic and political factors,” says Tom Selby, senior analyst at AJ Bell. “Some place a greater emphasis on collective provision, while others – including the UK – have a strong private pillar to supplement state income.
‘Transformational’
“This report emphasises the importance of maintaining incentives to save and ensuring people have confidence that the rug won’t be pulled from under their feet by politicians prioritising short-term cash generation over long-term policymaking.