Pensioners in the UK are hit hardest when it comes to pension benefits and quality of life, a just-published report by the Paris-based Organisation for Economic Cooperation and Development (OECD) has found.
Relative to pre-retirement earnings, UK retirees receive less than half of what their counterparts receive on average among OECD nations, with a retirement income of just 29% of their in-work pay, compared with the OECDX average of 63%.
The report was based on analysis of mandatory pensions, such as the state pension, and did not take into account private pension provision, placing the UK bottom of all OECD countries, behind relatively poor nations such as Mexico.
Turkey topped the list for disposable income post-retirement, with 102% of in-work earnings available on average.
Analysis was based upon a system called the “net replacement ratio”, which looks at disposable income pre- and post-retirement once taxation has been taken into account, both direct and “indirect”, such as national insurance contributions.
The UK’s low state pension was the cause of “high levels of pensioner poverty”, said the OECD. While it said that the single-tier state pension, introduced last year, would help the situation, it would only do so after many years, stating that “current retirees will not see a difference”.
Although UK citizens could boost their retirement earnings through private pension provision, the OECD expressed concern at the apparent lack of a safety net, saying “retirees without such additional sources of revenue are left with few resources.”
The report claimed that virtually one in five of the over-75s are subsisting below the poverty line, because of the “low level of the state pension”.
Strong private sector for pensions provision
Private pensions providers were unsurprisingly quick to point to the fact that the report only applied to the state pension while the private pensions provision sector was booming.
Senior analyst Tom Selby, pictured above, at online pensions and investment provider AJ Bell pointed out that pension systems around the world are shaped by a combination of social, economic and political factors. “Some place a greater emphasis on collective provision,” he said, while others – including the UK – have a strong private pillar to supplement state income.
“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.
“Countries such as Sweden have managed to build cross-party co-operation into their political system to encourage stability – a similar deal in the UK could be transformational and encourage more people to save earlier for retirement.
“The flexibility of the pension freedoms has clearly made retirement saving more attractive – a huge positive of the reforms – but equally there is a danger people will withdraw too much too soon and end up falling back on the state. We expect the issue of sustainability of withdrawals to become increasingly prominent as more information comes out on the behaviour of retirement savers in drawdown.
“In strained economic times and with longevity continuing to rise globally, Governments everywhere will have difficult decisions to make about the balance between state and private pension provision. In the absence of a Jeremy Corbyn administration, it’s hard to imagine the UK reverting back to paternalism any time soon.”
And head of policy at pensions broker Hargreaves Lansdown Tom McPhail agreed, when contacted by International Investment, saying “As the report rightly points out, the provision of state pension benefits is among the lowest in the developed world.
“However this is offset by the very substantial provision of privately funded pensions, primarily through the workplace.
This means UK retirees have pension benefits which in total are comparable to many other nations.”