If you were looking forward to your retirement, think again. A new report shows that Britain’s state pensioners face the most severe drop in income in the developed world.
UK workers face living on just 38% of their former salary when they retire, according to the Organisation for Economic Cooperation and Development (OECD). Only workers in Chile and Mexico survive on less in retirement. The British love to grumble and that is certainly something to grumble about.
Leader Of The Pack
The OECD said things could get worse as future generations will have even less generous entitlements than today, with many at serious risk of pensioner poverty.
Before you collapse into despair, there is a bright side to the report. In contrast to many European countries, British politicians have nursed a savings culture, through tax breaks on pensions and individual savings accounts (ISAs). Former Chancellor Gordon Brown’s notorious pensions tax raid and George Osborne’s tinkering have undone some of this, but we are still ahead of the pack.
Britons who have saved into a private pension get an income equal to 67% of the earnings they enjoyed during their working lives. This makes the financial drop-off smaller than in many developed countries, including Australia, Sweden, Germany, Denmark, France, Switzerland, Norway and Finland.
Save, Save, Save
This gives us a story with a very clear moral. Unless you save for retirement in your own name, you will spend your final years in poverty, scraping by on one of the world’s worst state pensions. The fact that they are worse off in Chile and Mexico will be little consolation.
People who retire from next April will get income worth £155.65 a week from Osborne’s forthcoming flat-rate state pension. That is worth a grand total of just over £8,000 a year, and then only if you have made a maximum 35 years of qualifying National Insurance contributions.
Compare that to what you are earning today. Then imagine if that was all you had to live on. It is barely one third of the average national salary, currently around £26,000. What you might spend in a few weeks or months today would have to stretch for a whole year.
Best Or Worst? Your choice
The solution is simple. You have to invest money for your future. Simply leaving it in cash isn’t enough, given near-zero savings rates. Buy-to-let has been destroyed as an investment by Chancellor George Osborne’s successive tax crackdowns. Stock markets can be risky in the short-term, but in the longer term they are more rewarding than almost any other investment.
You could start simple, say, with a low-cost tracker such as the HSBC FTSE All-Share Index, which follows the fortunes of the UK’s top companies. Or you can take your destiny into your own hands, by building a balanced portfolio of stocks and shares. What you can’t afford to do is nothing, unless you want your retirement to be among the worst in the developed world.
