UK pension will be worth 40% of average pay, with a retirement age only matched by those in Ireland and Czech Republic, says OECD

Workers in the UK will have the worst pensions of any major economy and the oldest official retirement age of any country, according to the Organisation for Economic Cooperation and Development.

The typical British worker can look forward to a pension worth only 38% of their salary, once state and mandatory private pensions are combined, and after tax. The Paris-based thinktank said on Tuesday that this compares with above 90% in the Netherlands and Austria and 80% in Spain and Italy.

Only Mexico and Chile offer their workers a worse prospect after retirement, although Turkey is the surprise table topper, giving its retirees an average pension equal to 105% of average wages, according to the OECD report.

The figures, however, did not include voluntary private pension savings, which are substantial in the UK. Once these sums are included, and assuming the person pays into a private pension across their working life, the OECD estimates the average British worker will retire on 61% of former earnings, before tax, or 71% after tax.

The pensions workers are likely to receive as a percentage of their former salary

The pensions workers are likely to receive as a percentage of their former salary

Workers in the UK will also have to toil for longer than anywhere else before they qualify for a state pension. Over the next two decades, the state pension age will move up to 68 in the UK, matched only by Ireland and the Czech Republic. In the rest of the developed world, even by the 2050s, the average retirement age will have moved up to only 65.5.

The French and the Belgians enjoy the earliest retirement. France is raising its state pension age from the current level of 62, but widespread early retirement means that, on average, French men and women stop work at 59.4 and 59.8 respectively, with the Belgians not far behind.

Koreans labour for longer than workers in any other OECD country. On average, men in South Korea work until the age of 72.9, while women do not stop working until 70.6.

Britain has begun an auto-enrolment scheme that will offer millions of low-paid workers a private pension for the first time. But with contribution rates low, the payouts will not be generous. Last week, the chancellor, George Osborne, gave employers a six-month delay to planned increases in their contribution rates.



Pensions expert Tom McPhail, of Hargreaves Lansdown, said: “This analysis makes embarrassing reading for the politicians who have been responsible for the UK’s pensions over the past 25 years.

“The state pension was in steady decline for years. Even though it is improving for lower earners now, average payouts will not be rising. It is in the private sector though where the real damage has been done; the collapse in final salary pensions has not yet been replaced with well-funded alternatives.”

The huge increase in the number of self-employed people in the UK is worsening the outlook for pensions. More than 4.5 million people are now self-employed, up 1.5 million in the past 13 years, with many in low-paid and precarious work, and few paying into a pension.

Research by Prudential to be published on Thursday reveals that just one in 10 self-employed people is making contributions into a private pension, with most saying they simply can’t afford it.

Vince Smith-Hughes of Prudential, said: “There has been a fundamental shift in the way people work in recent years, with the number of self-employed workers increasing by nearly 40% since 2001. But the step away from the security of salaried work also sees many workers giving up the benefits of company pension schemes and employer contributions.” Self-employed workers do not come under the government’s auto-enrolment scheme.

The OECD notes a striking change across the globe in the number of workers aged 55 to 64 who are remaining in work. In Germany, the employment rate for people in this age group has jumped from 45% to 66% over the past decade; it has risen from 31% to 46% in Italy.

While many European countries offer significantly better pensions than in Britain, the cost is now close to sustainable, said the OECD. In recent years, there have been frequent warnings about the “demographic timebomb” that will wreck the finances of ageing European nations.

But the OECD said: “The combination of higher pension ages, fewer options for early retirement, changes in the way benefits are calculated and more people working and contributing longer has greatly improved the financial sustainability of pay-as-you-go pension systems.” It said that the burden of paying pensions would rise from the current level of 9% of GDP to just 10.1% by 2050, with some countries even seeing reductions in spending.

