The average income of a UK pensioner aged 66 or over as a percentage of the average income of the total population is below the Organisation for Economic Co-operation and Development (OECD) average.

According to the OECD’s latest Pensions at a Glance publication, pensioners in OECD countries had an average income of 88 per cent of the total population average income, while UK pensioners’ income was 81 per cent.

Furthermore, the UK’s pensioner relative income poverty rate was above the OECD average, as was income inequality of those aged 66 and over.

The OECD described the UK’s income inequality and relative old-age poverty rate as “high”, noting that those with sufficient income during their working lives had been able to save, while those less fortunate were left with few resources.

The old-age poverty rate was particularly high among those aged 75 and above, with 19.2 per cent of people in this cohort having incomes below half the median household disposable income.

The majority of those aged 75 and over that were in poverty were women, as the OECD noted that they had shorter employment records and were therefore less likely to have pension entitlements.

Despite the OECD describing the old-age poverty rate for over-65s as high, it acknowledged that it had fallen from 22.7 per cent in 2000 to 15.5 per cent in 2018, and it should continue to decline due to the state pension triple lock.

The OECD found that auto-enrolment raised pension prospects “significantly”, highlighting that pension coverage had increased from 40 per cent in 2012 to 88 per cent in 2019 due to the policy.

It calculated that average-wage workers contributing for their entire career could expect a future pension equivalent to 58 per cent of their previous take-home pay, slightly below the OECD average of 62 per cent.

“However, annual contributions to private pensions will only guarantee financial security in retirement if contributions are made every year and the pension pot is fully annuitised at retirement,” the OECD stated.

“There is no guarantee that the level of participation in the auto-enrolment schemes will remain high in the long term. Moreover, low earners typically save less in voluntary schemes. Currently, the entire pot can be withdrawn as a lump sum from age 55, with 25 per cent being tax free.”

The OECD warned that, although early pension withdrawal generated flexibility and freedom that many people appreciate, enabling people to have such control of their assets comes with risks, while the risks for low to medium earners might be “substantial” as they are more likely to be tempted to take their pension as a lump sum.

The UK population was found to not be ageing as fast as many countries in the OECD, while retirement age, pension spending and pension assets in the UK were above the OECD average.

Commenting on the report, Hargreaves Lansdown senior pensions and retirement analyst, Helen Morrissey, said: “While pensioners were largely protected from the financial impact of COVID-19 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.

"Overall data shows the stark reality of retirement in the UK today. 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. While many people are happy to do so, there will be others who are unable to – Public Health England data shows healthy life expectancy is much lower than life expectancy and so 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. 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 its also worth checking with your employer if they will increase their own contribution – over time this can really add up.

"However, the report shows it is not a challenge we face alone - dealing with the ageing population is an issue that has people scratching their heads across the globe and we see a global move to raise pension ages and tweak pension systems to cope with these changes.”

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