UK savers can expect to receive 29 per cent of their working income in retirement from mandatory pension schemes, which is less than half the Organisation for Economic Co-operation and Development average.
The OECD today released its Pensions at a Glance 2017 report, which compares global pension systems.
The report says the net replacement rate from mandatory pension schemes for full-career average-wage earners entering the labour market today is equal to 63 per cent on average in OECD countries. This ranges from 29 per cent in the UK to 102 per cent in Turkey.
On average, the OECD says replacement rates for low-income earners are 10 points higher and range from under 40 per cent in Mexico and Poland, to more than 100 per cent in Denmark, Israel and the Netherlands.
According to the OECD, by 2060, under legislation currently in place, the normal retirement age will increase in around half of OECD countries, by 1.5 years for men and 2.1 years for women on average, reaching just under 66 years.
It says the future retirement age will range from 60 years in Luxembourg, Slovenia and Turkey to 74 in Denmark.
AJ Bell senior analyst Tom Selby says: “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.”
Selby adds: “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.”
Just group communications director Stephen Lowe says: “The OECD notes that pension freedom rules allowing cash withdrawals from private pensions may lead individuals to spend money lump sums early or underestimate their life expectancy through drawdown, leaving them with limited resources in old age.”
He adds: “It is clear that the standard of living UK pensioners enjoy depends to a large extent on how much they save, how long they work and the decisions they make at retirement.”
A Department for Work and Pensions spokesman says: “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 – reducing pensioner poverty close to historically low levels.”
He adds: “But there’s always more to do. Thanks to automatic enrolment, around 11 million people will be newly saving or saving more into a workplace pension by 2018.”