New data on pensions shows the stark reality of retirement in the UK today, according to Hargreaves Lansdown.
Late career starts, lower wages and redundancy mean younger generations risk missing out on vital pension contributions, the financial services firm warned.
The comments are in response to the Pensions at a Glance report from the Organisation for Economic Co-operation and Development (OECD).
Pensions at a Glance looks at the pension systems across the OECD and assesses how they are responding to challenges such as the Covid pandemic and ageing populations.
It’s a fairly grim picture and a far cry from the traditional view of retirement, with happy couples strolling along beaches or going on a cruise – the reality is that we face working longer.”
Helen Morrissey, Hargreaves Lansdown.
Someone on the average wage in the UK can expect the average income from their state and auto-enrolled pensions to cover around 58% of their working wage after they retire.
This is known as a net replacement rate and compares to an OECD average of 62.4%.
These replacement rates differ markedly from less than 35% in Estonia to more than 90% in Portugal.
Just under 24% of people aged between 65-69 continue to work in the UK.
Another pandemic blow
While pensioners across the OECD are well-protected from the financial impacts of the pandemic, concerns remain about the effect on lower age groups.
Hargreaves Lansdown senior pensions and retirement analyst Helen Morrissey said: “This report shows the potential impact on younger generations.
“Late career starts, lower wages and redundancy means they risk missing out on vital pension contributions.
“For a generation who has already suffered so much financially at the hands of the pandemic, this is another blow.”
Ms Morrissey added: “Overall data shows the stark reality of retirement in the UK today.
“On average, income from state and auto-enrolment pensions offer a net replacement rate of around 58% of the average wage and we are seeing just under 24% of people aged between 65 and 69 continuing to work.
“The ratio of working age people to non-working age people continues to accelerate and this will place further pressure on the state pension.
“It’s a fairly grim picture and a far cry from the traditional view of retirement, with happy couples strolling along beaches or going on a cruise – the reality is that we face working longer.”
She continued: “While many people are happy to do so, there will be others who are unable to.
“The reality for many people is they will be unable to keep working for as long as they need.”
The role of the workplace pension has never been so important in plugging these gaps, Ms Morrisey said.
She added: “Auto-enrolment will make a big difference to people’s retirement prospects in years to come, but it’s important to engage and not just set and forget your contributions.
“Making the most of your contributions by topping them up whenever you get a pay rise can make a huge difference to how much you end up with.
“If you are increasing your contribution, it’s also worth checking with your employer if they will increase theirs – over time this can really add up.”
The report shows it is not a challenge people are facing alone, she said, adding: “Dealing with the ageing population is an issue that has people scratching their heads across the globe.
“We see a global move to raise pension ages and tweak pension systems to cope with these changes.”