UK Pensioners Could End Up As the Poorest in Europe

The problems facing many Britons in retirement has been revealed by a new survey showing the average worker will retire on less than the minimum wage.

An average person will see their income drop by more than 50 per cent on reaching retirement to just pounds215 per week – which, when compared to a 40-hour week is lower than the pounds5.52 per hour minimum wage.

The findings of the third annual Fidelity Retirement Index showed that total income made up of state and private pensions would be 53 per cent below the median UK weekly wage of pounds457.

Fidelity said the drop in income would be slightly worse than the 50 per cent seen in last year’s report, but an improvement on its first report which showed a 58 per cent fall.

However, overall prospects could decline rapidly as defined contribution pensions replace defined benefit final-salary schemes.

Those in defined benefit plans have pensions typically linked to final salary and length of service, and can expect to retire on two- thirds of pay after 40 years of service.

But members of defined contribution schemes, where income relies on contribution levels and investment performance, can expect just 38 per cent of salary in retirement.

Simon Fraser, president of the retirement institute at Fidelity International, said: “There’s nothing inherently wrong with defined contribution pensions. In fact, defined benefit is arguably a better solution for today’s highly mobile workforce.

“But the move from defined benefit to defined contribution is often accompanied by a review of contribution levels, sometimes to the detriment of employees.

“It is a shocking thought that, if this is not corrected, we could see the emergence of a generation of private pension paupers.”

The report, built on financial modelling and a survey of 1,000 people, revealed that Britain’s workers are falling behind both Germany and the USA for retirement income, with employees in those countries on course for 56 per cent and 58 per cent of income in retirement.

Fraser says: “While the movement from defined benefit to defined contribution schemes isn’t a uniquely British phenomenon, the maturity and significance of occupational pensions in the UK means that this trend is much more pronounced.

“With government still also committed to means testing, for example, there is a danger that the “real” difference may be much greater for future generations of UK retirees than the headline figure suggests.’

? Useful link: Get tips on a richer retirement at www.thisismoney.co.uk/pensions

(c) 2008 Evening Post (Bristol UK). Provided by ProQuest Information and Learning. All rights Reserved.