UK state pension the least generous of all advanced economies
Pensioners receive just 29% of what they earned when working.
The UK’s state pension is the least generous of the most advanced economies in the world, according to a new report.
A study by the Organisation of Economic Co-operation and Development (OECD), reported by the BBC, says full-time workers in the UK can expect to receive just 29% of their salary when they retire.
Pension systems in Japan, Germany, France, Italy, the United States, Canada, the Netherlands and Ireland all pay out a higher proportion of working income. Only South Africa – which isn’t a member of the OECD – is less generous.
Once “voluntary” pensions, such as auto enrolment or workplace pensions are taken into account, however, the UK model is more competitive, with the average UK pensioner getting 62% of his or her working income. But the OECD average is still higher at 69%.
The Trades Union Congress (TUC) said the government needed to improve the way the UK pension system works.
“The OECD has confirmed what we have long suspected – the UK is bottom of the league for pension provision,” said Frances O’Grady, the TUC’s general secretary. “Working people in Britain face the biggest retirement cliff edge of any developed nation.”
Since 2010 the state pension has been protected by the so-called triple lock, meaning that pension payouts have risen by the highest of earnings, inflation or 2.5%, but this is due to end in 2020.
In defence, the government has pointed out that 11 million people will be saving into a workplace pension by 2018, and insist the state pension is now more generous than it was.
“We have taken decisive action to address our changing population through a new, generous State Pension, retaining the triple lock and protecting the poorest through Pension Credit,” a spokesperson for the Department of Work and Pensions said.
A separate report, from the Pension Protection Fund (PPF), found that defined benefit pension schemes in the UK are increasingly investing in bonds rather than shares – investments that are less volatile but also less likely to grow in value. Just over a decade ago 61% of scheme assets were invested in equities, but by this year that number had fallen to 29%.
Meanwhile, the percentage of assets held in bonds has risen from 28% to 56% – suggesting the market has become more risk averse. But experts warn they may discriminate against younger workers.
“Of all investors in the UK, final salary schemes should be able to take the most patient, long-term view of asset allocation and investment risk, yet they have become increasingly short-term and conservative in their strategy,” said Nathan Long, pensions expert at Hargreaves Lansdown.
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