The Fidelity Retirement Index shows that the average employee will face a 53 per cent drop in income when they enter retirement.
Fidelity calculates that the £215 weekly retirement income that awaits the average UK employee is below the £220 per week that a worker on the minimum wage would earn for a 40-hour week.
It is also less than half of the average weekly wage of £457.
The Fidelity Retirement Index shows a slightly more severe drop income than last year, when the average UK worker was on course for a 50 per cent drop in income at retirement, but Fidelity says overall prospects for retirees could rapidly deteriorate as defined contribution schemes replace defined benefit schemes.
Members of DB schemes, whose pension is commonly linked to final salary and length of service, expect to retire on two-thirds of pay after 40 years of service, says Fidelity.
But workers in DC schemes, where retirement income is tied to contribution levels and investment performance, are on course for just 38 per cent of salary in retirement – a decrease of 62 per cent for someone on average earnings.
Fidelity says the UK does not compare favourably with other countries, as British employees are on course to receive 47 per cent of their salaries in retirement, while Germans are likely to get 56 per cent and Americans are on track to receive 58 per cent.
Fidelity International Retirement Institute president Simon Fraser says: “There’s nothing inherently wrong with defined contribution pensions. In fact, DC is arguably a better solution for today’s highly mobile workforce.
“But the move from DB to DC is often accompanied by a review of contribution levels, sometimes to the detriment of employees. It is a shocking thought that, if this is not corrected, we could see the emergence of a generation of private pension paupers.”