New research from the Organisation of Economic Cooperation and Development (OECD) has shown that the UK has the least generous state pension of all the world's advanced economies. It has also shown that private pensions are playing an increasingly important role in providing UK citizens with an adequate income in retirement.
At just 29% of the average worker's income, the UK state pension is the lowest in the OECD and is equivalent to what is on offer in Mexico. The most generous was the Netherlands which pay state pensions the equivalent to 100% of the average worker's wage.
One of the effects of this low state pension, according to the report, is that poverty rates amongst pensioners are high. The report finds that "…poverty among older people is high in the United Kingdom: among those aged 75 and over 18.5% have incomes below the poverty line, most of them women. The main reason is the low level of the state pension."
The report goes on to note that private pensions could help to fill the gap, and the role of private and workplace pensions will increase in importance as people live longer and therefore spend a greater proportion of their life in retirement. Pensions are amongst the most tax-efficient way of saving, and voluntary contributions to personal pension products such as SIPPs (Self Invested Personal Pensions) can make a difference in the long run.
There has also been a huge increase in workplace pensions in the UK thanks to the introduction of auto enrolment, seeing millions more saving for retirement. This huge increase in the numbers saving into such schemes will also help bridge the gap in retirement savings.
In response to the report, a Department of Work and Pensions spokesperson pointed to the positive steps that are being taken by the government.
"We have taken decisive action to address our changing population through a new, generous state pension, retaining the triple lock and protecting the poorest through pension credit, reducing pensioner poverty close to historically low levels."
"But there's always more to do. Thanks to automatic enrolment, around 11 million people will be newly saving or saving more into a workplace pension by 2018."