Fact Service November 2013

Issue 47

UK pension rank

The UK’s state pension is among the worst in the developed world only topped by Mexico, according to the think tank, the Organisation for Economic Co-operation and Development, which represents 34 of the world’s biggest economies,

The OECD said UK workers taking home average pay can expect a pension worth just 32.6% of final pay when they retire, compared to a 54.4% average across the rest of the OECD.

Lower earners fare slightly better with a so-called replacement rate of 55.8%, compared to the OECD average of 71%, placing the UK sixth from bottom.

“With the legislated increases in retirement age to 67 for both men and women, expenditure is only expected to increase by 0.5% over the next year 40 years to 8.2% of GDP, well below the OECD average of 11.7%,” the OECD said.

However, it added: “This low level of [public] expenditure reflects the structure of the system which has a low public element in comparison with other OECD countries supplemented by a well-established voluntary private pension component.”

The OECD welcomed plans to automatically enrol employees onto workplace pensions over the next few years. The OECD assumes that workers will contribute 8% of their salaries under auto-enrolment, although experts also warned however of the unrealistic assumptions of investment returns on auto-enrolment pots by the think tank and the Department for Work and Pensions.

www.oecd.org/unitedkingdom/OECD-PensionsAtAGlance-2013-Highlights-United-Kingdom.pdf

www.oecd.org/newsroom/pension-reforms-on-track-but-the-challenges-of-adequacy-and-inequality-in-old-age-remain.htm