United Kingdom records highest dependence on private pensions in OECD

Elias Hubbard
December 6, 2017

In its annual Pensions at a Glance report, the body found the net replacement rates for future retirees from mandatory parts of the retirement system, such as the state pension, will be the lowest of any OECD country.

For low earners in the United Kingdom, the replacement rate improves.

Pensioners in the United Kingdom 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.

In comparison, the OECD average is 63%.

"It is clear that the standard of living United Kingdom pensioners enjoy depends to a large extent on how much they save, how long they work and the decisions they make at retirement".

Furthermore, private pensions could help fill the replacement gap, adding around 30 percentage points to the net replacement rate with a full career of coverage.

The TUC general secretary, Frances O'Grady, said: "Working people in Britain face the biggest retirement cliff edge of any developed nation".

Now there are 30 people aged 65 and over for every 100 and this is set to rise to 48 by 2050, according to the figures. "Some place a greater emphasis on collective provision", he said, while others - including the United Kingdom - have a strong private pillar to supplement state income.

The UK population is ageing rapidly, has relatively high levels of poverty among the over-75s, and a much bigger problem with obesity in old age, said the OECD, with 20% of British over-80s classified as obese, compared with 15% in the United States and under 10% in Italy.

"People who have had sufficient income during their working lives to save, buy their own home, and contribute to private pensions, have relatively good incomes compared to younger generations", the report says.

Further, the sharp rise of income disparities during the 1980s means that inequalities in later life will rise as generation X (those born 1960s - 1980s) approach retirement.

Similarly, the introduction of the new single-tier pension - 30% higher than the old state pension - should improve the overall picture facing United Kingdom savers.

And it criticised George Osborne's changes to pensions that enabled older people to withdraw chunks of cash from their retirement pots as some may be encouraged to spend the cash early.

The cost of public pensions is one of the largest social expenditures governments have, accounting for 18% of total spending on average in 2013, the report said.

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.

"But there's always more to do".

On a positive note, the OECD said following the introduction of auto-enrolment in 2012, there has been a reversal in the downward trend of workplace pension participation, rising from 42% in 2012 to 70% in 2015.

Other reports by Click Lancashire

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