The UK has some of the lowest pensions in the World, according to an Organisation for Economic Cooperation and Development (OECD) report out this morning.
Public pensions spending in the UK accounts for 5.6 per cent of GDP, less than the OECD average of 7.9 per cent of GDP, even though the UK has an older population. Across the OECD, on average 16.2 per cent of the population is over 65-years-old, compared to 18.1 per cent in the UK.
The UK has one of the lowest average 'replacement rate' retirement incomes in the developed world, ahead of only Mexico and Chile, which is an individual's net pension entitlement divided by net pre-retirement earnings. It measures how effectively a pension system provides a retirement income to replace earnings, and the lower the figure, the greater the drop in earnings after retirement.
The average worker in the UK has a replacement rate income of around 40 per cent, compared to the OECD average of above 60.
Tom McPhail, head of retirement policy at 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 and even now, is improving for lower earners but 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.
An ageing population is putting pressure on pensions schemes, the report warns, and predicts that by 2050 almost 18 per cent of the world's population will be over 65-years-old, up from eight per cent now.
The OECD blames "sluggish economic recovery" and large government debt in the aftermath of the financial crisis for the low pension contributions.
It added that low interest rates and returns, and protracted market uncertainty will "cast doubts on the ability of defined-contribution and annuity schemes to deliver adequate pensions."
The OECD predicts that retirement age will increases from an average of 64 in 2014 to 65.5 by 2060, but in the UK, the retirement age for the basic pension will increase to 66 in 2026 and 67 by 2028.
The report also shows that across the OECD there has been a shift in wealth from the young to the old. The relative income poverty rates for over-65s and over-75s have fallen dramatically since the 1980s, implying they receive higher incomes than others in society. The relative poverty rate for 18-25-year-olds is now the highest, taking the place the over-75s.