Future UK retirees will face the lowest replacement rate of all developed nations, according to the Organisation for Economic Cooperation and Development.

The OECD’s Pensions at a Glance 2017 report revealed that average earners can expect to receive just 29 per cent of their working income from mandatory sources, compared to an OECD average of 63 per cent.

The UK’s lowest earners will achieve a slightly improved replacement rate of 52 per cent, however this is still the third lowest within the OECD, with only Mexico and Poland retaining lower rates.

Commenting on the OECD’s report, Trade Union Congress’ general secretary, Frances O’Grady, said: “The OECD has confirmed what we have long suspected – the UK is bottom of the league for pension provision. Working people in Britain face the biggest retirement cliff edge of any developed nation. We are letting down today's workers if we can't provide them with a decent retirement income.”

O’Grady has called on the government to use its auto-enrolment review to improve living standards in old age.

Hargreaves Landsown head of policy, Tom McPhail, believes that despite the UK being amongst the lowest in the developed world, this is offset by substantial provision of private funded pensions through the workplace.

“This means UK retirees have pension benefits which in total are comparable to many other nations. A real area of concern is the Generation X who will be reaching retirement in the next 10 to 20 years; they won’t get the same level of final salary benefits but they also won’t have had the time to build up substantial defined contribution pots either,” McPhail said.

According to the OECD, by contributing 8 per cent to a private pension pot, retirees could see their retirement income increase to over 60 per cent, below the OECD average which is closer to 70 per cent, once the additional private pots have been accounted for.

Despite this, the UK still lags behind Japan, Germany, France, Ireland and the USA.
The OECD’s deputy director of employment, labour and social affairs, Mark Pearson, argued that improvements in socio-economic differences in employment rates will help improve the situation.

Pearson said: “Instead of waiting for somebody to become unemployed or lose their job through illness, or even six to nine months after, you need to identify people who are at risk and act on it, which is what is Sweden and Germany are doing.

“The second thing is to keep looking at auto-enrolment and keep rates as high as possible. We are doing okay but not as well as some other countries and we need to understand why that is. It is where big business comes in and it is important to understand why we are not managing to get more people engaging with the system, once they are enrolled,” Pearson added.

The Department of Work and Pensions is expected to release its auto-enrolment review tomorrow (6 December).

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