Sweeping reforms to the UK pension system do not go far enough, according to an international report that says Britain fares badly compared to many peer countries.
Despite recent changes, the UK's public and state pensions remain "almost entirely unfunded", say analysts from the Melbourne Mercer Global Pensions Index (MMGPI), while the basic state pension is too meagre for people without adequate private provision.
"The UK's unfunded state pension promises, low level of retirement saving, increasing old age dependency ratio and substantial government debt threaten its ability to deliver adequate retirement incomes," says the report.
The chief criticism is over the introduction of landmark pension freedoms in April – which allow savers to take some, or even all of their pot as a lump sum.
This is because the point of a pension is to save for an income in retirement, but the government has removed the requirement for people to turn their savings into an income stream over time – which is risky, says David Knox of MMGI. “We don’t want 100 per cent annuitisation because that removes the flexibility to use lump sums, but you need some income stream because the pension system is there to provide an income while you live.”
The UK ranks as having the ninth best pension system in the MMGPI, but it is a whisker away from slipping down in the 25-country rankings.
The lack of pensions savings among the general populace was flagged up as a problem. British households save only around five per cent of their incomes - compared with China, where people put away 70 per cent of their income.
Although the upcoming auto-enrolment system - which requires employers to provide a pension scheme for workers - will improve the system, the compulsory savings levels are still too low. Initially, employers have to contribute one per cent of an employee's salary, while individuals save 0.8 per cent.
These figures will rise over the coming years.
"Having a pension is not the same as having an adequate pension. The UK lacks the savings culture of other countries and current minimum auto-enrolment contributions are unlikely to deliver adequate retirement outcomes," says Glyn Bradley of Mercer's UK Retirement business.
The news follows yesterday's publication of a damning report from the Work and Pensions Select Committee, which said the April reforms were "insufficient".
Although this year's pension changes were the biggest for a generation, there system is likely to be in for further policy revamps. The government has just closed a consultation on how pensions are taxed, and the results are expected to be announced in the Budget next spring.
Engaging younger savers in pensions will be particularly important, especially given the average life expectancy for men is currently 86 and for women is 89.