Every year the OECD (Organisation for Economic Co-operation and Development) publishes a report entitled Pensions at a Glance, which compares a whole range of data across countries in relation to state and other pensions, retirement ages and population forecasts. The latest one was published in December 2017.
BRITAIN’S STATE PENSION IS THE WORST IN THE DEVELOPED WORLD
According to the OECD’s latest report, a worker entering the British labour market today can expect to receive less than a third (29%) of their final working salary as a basic pension after tax – and is 40% lower than those who entered the labour market in 2002, who would have received around half of their salary in state pension.
Since the study began the UK has consistently ranked near the bottom of the table, but this is the first time it has been in last place. The OECD believes the fall is because the government replaced the earnings-related State Second Pension (S2P) with the new flat-rate pension which came into force in April 2016.
Elsewhere in the developed world, the average worker can expect 63% of their salary as a state-funded pension. For example, the pension systems in Japan, Germany, France, Italy, the United States, Canada, the Netherlands and Ireland all pay a higher proportion of working income.
The report also acknowledges that current poverty levels of those aged 75 and over are 18.5%, compared to 11% of the whole population and just over 10% for the age group 66-75. Women are most affected by old-age poverty.
The Government has long been pushing for individuals to fund their own private pension schemes (PPS) to top-up the shortfall. A well-funded PPS could add 30% to state benefits and make all the difference between a comfortable or underfunded retirement, it does however, understand that in the current economic climate people are struggling to simply maintain a reasonable living standard and may not have any extra cash to put away for their retirement.
Interestingly, the report also states that high levels of obesity and lack of exercise among pensioners is causing considerable health issues and has become a serious cause for concern among older people in the UK. In England, more than 20% of the over-80s are obese, compared to about 15% in the United States and less than 10% in many other European countries.
This raises serious concerns as to whether future generations will be able to continue working up to their state pension age – which could be 68 by 2037-39 if government plans are adopted.
Despite promises made by successive governments, child and pensioner poverty is now on the rise, with 300,000 more older people living in relative poverty than in 2013. Approximately 1.9m pensioners now live on less than 60% of the average household income.
Currently, a large number of people approaching retirement age have been unable to purchase their own homes which will lead to increasing, and ongoing housing costs, as rents continue to rise and subsidies fall. This can only lead to a falling standard of living for less well-off pensioners in the future.
A recent National Audit Office report also found that 76% of people planning on retiring in 2060 will be considerably worse off under the new state pension than if they had been on the old system.