We have one of the worst State Pension systems in the developed world, a new report claims.
Pensioners in the UK get the second worst State Pension deal in the developed world, ahead of only Mexico, according to a new report.
The pension scheme in the UK is less generous than countries such as France, Italy, Australia, Germany and Ireland. On average pensioners will retire with a State Pension equivalent to 32.6% of their working income, compared to 90.7% of retirees in Holland.
According to the study from the Organisation for Economic Co-operation and Development (OECD) the only country worse-off is Mexico, where retirees can expect an average of 28.5% of their working wage in retirement. Not only is this far below other countries, it’s also well below the OECD average of 54.4%.
The current weekly State Pension allowance in the UK is £110.15 per week. But in order to get this pensioners need to have worked for at least 30 qualifying years and paid sufficient National Insurance over that time.
Lower earners fare slightly better in the UK and can aim for 55.8% of their working wages in retirement, which is a lot closer to the OECD average of 71.0%. In this scale the UK is sixth from the bottom.
Higher earners can only expect 22.5% of their wages, compared to an overall average of 48.4%.
The table below charts the average State Pension compared to working wage, from worst to best.
|
Country |
Gross pension rate |
|
Mexico |
28.5% |
|
United Kingdom |
32.6% |
|
Japan |
35.6% |
|
Ireland |
36.7% |
|
United States |
38.3% |
|
Germany |
42.0% |
|
Canada |
45.4% |
|
Australia |
52.3% |
|
France |
58.8% |
|
Italy |
71.2% |
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Private pension contributions
The OECD was a little more positive about our prospects in the future, particularly thanks to the introduction of auto enrolment.
If workers contribute 8% of their earnings to a pension pot, the default amount required through automatic enrolment, they can expect to earn the OECD average in retirement, no matter how much they earned in their working life.
The addition of a private pension brings the overall average to 76.2% for low earners and 48.4% for high earners, with an average of 55.4%. But this will only be the case for workers who have maintained a contribution of 8% throughout their careers.
The OECD says Governments need to do more to encourage people to work longer and save more for their retirement.
“Raising retirement ages and promoting private pensions are all steps in the right direction but alone they are insufficient,” said OECD Secretary-General Angel Gurría. “Governments need to consider the long-term impact on social cohesion, inequality and poverty. Ensuring everyone has a decent standard of living after a life of work should be at the heart of policies.”
The report also said that the wealth of retirees around the world is very unbalanced. In particular women aged over 65 are suffering the most as they tend to live longer, have lower pensions and are at a greater risk to poverty when long-term care is needed.
Do you think the State Pension is sufficient? How would you improve it? Or is it down to us to take individual responsibility for our pension saving? Let us know your thoughts in the comments box below.
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