Britons will experience one of the largest falls in income in the developed world when they stop working unless they save more and retire later, the Organization for Economic Cooperation and Development said.
The Paris-based OECD’s pensions report, published Thursday, said the average net replacement rate, which measures how post-retirement income compares with preretirement income, is 69% percent for its 34 member countries. For the U.K., it’s 42%. Only Mexico, Ireland and Japan have a lower rate. Greece tops the league with a rate of 111%.
“The U.K. ticks the boxes for financial sustainability and having a diversified system,” Edward Whitehouse, the report’s author, said in a telephone interview. “Where it falls down is on the adequacy of the pensions. If people don’t save, they’re going to have a fairly miserable time in retirement.”
Both the U.K.’s previous Labor government and the current Conservative-led coalition have tried to deal with the shortfall. Starting in 2012, the U.K. will move to an “opt-out” system, in which employees are enrolled in private savings plans by default, putting aside 8% of their incomes. The retirement age is also set to rise.