OECD: UK pensions are among the worst in the world
Pension reforms over the past decade have slashed future pension pots by as much as a quarter. A new report highlights how much better our European neighbours will have it.
A new report from the the Organisation for Economic Co-operation and Development (OECD) has claimed pension performance in the UK is among the worst in the developed world.
The report said recent pension reforms have shrunk pension pots for future generations – by 20-25% on average. People embarking on careers now can expect a pension worth half their net earnings if they retire after a full career and at the official retirement age.
But in countries where private pensions are compulsory or near-universal, pensioners can expect benefits of around 60% of earnings. This includes countries like Denmark, the Netherlands and Sweden.
Why do our pensions look rubbish?
In a nutshell people aren’t saving enough, they’re not saving early enough, and they're not working long enough. Undoubtedly for those currently saving into a pension it feels like the complete opposite.
Some people have yet to save anything for old age, which we covered in One in five has no pension savings.
These factors, combined with falling annuity rates and poor investment returns, means our retirement pots fall short of the mark.
As a result many Brits are forced to work into their twilight years because they can’t afford not to. Office for National Statistics (ONS) figures published last week show that the number of people working beyond the state pension age has doubled in 20 years to reach 1.4 million pensioners.
The OECD Pension Outlook report also highlighted the extent of the problem with investment performance. The real return for UK pension funds is -0.1% for the period spanning 2001-10. By comparison, most other developed countries, including Chile and Poland, have seen an increase in returns for pension pots. Only Spain and the US produced figures worse than the UK.
What does all this mean for you?
Sadly, you’re more likely to be poor in retirement or forced to work long past the time you should have given up. Meanwhile our European counterparts will probably manage a bit better.
It’s Europe versus the UK – but not in football, or even in votes tallied for the Eurovision song contest. It’s for pensions. And once again, we are nil points.
Why are other countries doing better?
Some countries have formally linked the pension age to life expectancy, while others have pushed the pensionable age up much faster than Britain, with ‘67 becoming the new 65’.
While this will happen in the UK by 2028, the likes of Iceland and Norway are already there.
Some countries also make saving into a private pension a requirement or at least near-compulsory.
How can we improve things at home?
Automatic enrolment might go some way to alleviate the problem. The plan is being rolled out gradually, starting in October this year, and will see millions of workers automatically placed into an eligible workplace pension scheme.
Your employer has to pay minimum contributions into the pot and if for some reason you don’t want any part in it, you will have to actively opt-out. The state pension age is also gradually going up.
The rest is up to you. Experts recommend that you put more into your pension each year and review your planning arrangements as often as you can. Increasing annual pension contributions from 8% to 12% can increase a pension pot by 50%, according to the Association of British Insurers. Delaying starting pension saving by five years can reduce a final pension pot by 17%.
For more ideas, read Six steps that will treble your pension.
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