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Why you have to save and shouldn't rely on the state pension

A report by the Organisation for Economic Co-operation and Development spells out why we have to save more, work longer or do both if we're to make ends meet when we're older.


by Michelle McGagh on Jun 15, 2012 at 11:12

Why you have to save and shouldn't rely on the state pension

Workers who save into a private pension can enjoy an average of 60% of their earnings as an income in retirement, 10% more than those who are planning to rely on the state pension, a new report has found.

The Organisation for Economic Co-operation and Development (OECD), an international body that helps governments tackle economic issues, has said the current pensions landscape is unsustainable, and it has made a number of recommendations to boost the UK and other countries’ woefully inadequate savings rates.

Calls for compulsory pension saving

In its Pensions Outlook 2012, one major change it champions is introducing compulsory pensions saving in developed countries. It argues that reforms have cut public pension pay outs by between 20% and 25%, and says those working today should not rely on the state pension. It estimates that a typical worker can expect to receive half their net earnings as a state pension if they retire after a full career and at the state retirement age.

The average state pension in the UK is currently around £11,000 a year, the same amount a full-time worker on minimum wage earns each year.

The OECD notes that in countries that have made private pensions saving compulsory, workers can expect to retire on 60% of their earnings each year.

It also warns that pension poverty could increase dramatically if people continue to sideline saving for their old age.

However, it admits that compulsory saving could be seen as another tax, particularly by those on lower incomes, and said the halfway house of auto-enrolment, where workers are automatically enlisted in pension schemes but have the opportunity to opt out, could be a good solution.

Contributing more

The UK government will from October 2012 be auto-enrolling all employees who are not in a workplace scheme into one with the hope of boosting Britain’s ailing savings culture. Everyone will have the opportunity to opt out and must continue to opt out every three years, although the government is hoping that inertia will keep many people in the scheme and get people who would otherwise have saved nothing to put something aside.

Laurie Edmans, a trustee of the government-run National Employment Savings Scheme (Nest), into which many workers will be auto-enrolled, said saving would be tough for some people to contemplate given the economic conditions but that auto-enrolment was needed to kick-start the savings habit.

‘We are looking at austerity, and it would be wrong to think that the climate does not affect [savings] but despite that we need to start auto-enrolment as it is the best for the majority of people,’ he said.

‘The average salary is £25,000; there are people who save on that salary, it is a matter of disposition and engagement.’

Edmans said the earlier people started saving the better, and that a person who begins pension contributions at age 30 will have 50% more in their pension pot when they retire than someone who starts saving at 40 but retires at the same age.

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7 comments so far. Why not have your say?


Jun 15, 2012 at 13:24

Anonymous 1 needed this 'off the record'

Jun 15, 2012 at 13:45


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Jun 15, 2012 at 13:53

''....and that a person who begins pension contributions at age 30 will have 50% more in their pension pot when they retire than someone who starts saving at 40 but retires at the same age.''

This statement is clumsy and more importantly misleading. Most GCSE kids would not fall into this trap and either Citywire have misquoted Edmans or Edmans is not suitably qualified to hold this post.

When predicting the size of someone's pension pot one should never use the word ' will '.

That is reckless and many readers would assume that starting saving at 30 WILL give them 50% more in retirement that someone who starts at 40.

There are numerous occasions throughout history where the market would show this to be incorrect and, since most pensions will be exposed to equities, the statement as written is incorrect.

Please will Edmans or Michelle McGagh offer a retraction.

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Rose G

Jun 15, 2012 at 15:36

Can someone tell me why I have to pay NI as well as taxes?

Governments are unreliable so, yes I would save if I was refunded my NI - we are being taxed to death, and some even after death - what exactly is the taxation being used for - to keep the elitists in power, playing with the lives of the taxpayer, while they retire on 6 figure pension pots?

The OECD may well advise people to save, but when you are being taxed on your income, then pay for local services, and pay road taxes, and VAT which was increased how the f**k is someone supposed to save on an income of 26K pa, with either rents or mortgages set to rise to ever greater heights, only the very rich can afford to put aside money for their pensions.

I have contributed to an occupational pension, but will receive less than was calculated, will have to make more contributions, for not a penny more in my pension pot.

Why should people bother with saving, when your savings are at risk because of whatever government comes along raiding the pensions you have invested, or introducing new taxation to reduce your savings or deciding to change when you can retire.

It is all very well for politicians, its no big deal to turn up even if your are over 80, collect your payment for every attendance, and sleep the session through. Most workers who do manual work will be unable to continue with their workload but forced to work even if they are unable to.

If governments tax us, why should they not ensure that this money is invested appropriately for those who contributed?

The whole of the financial services is mired in inept and corrupt practice, yet we are expected to continue to see them being given huge sums of money, which who is to check that they will actually lend to small businesses? They did not do so when they were bailed out, why should they start now.

Let's face it, who cares what governments think or do, as ordinary people we just cope with the disasters they land on us.

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Michael Stevens

Jun 15, 2012 at 17:07

State Retirement Age must rise to 70 by 2040.

There should be just one pesion scheme for all taxpayer supported employees. Police, fire, doctors, judges, civil servants. council workers etc.

Contributios on a 50/50 basis. I and many others would like a matched contibution from my emlpoyer.

Fair to all.

A pension scheme is the most tax effiient savings scheme available.

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Jun 16, 2012 at 04:45

I really do wonder where the figure of £11,000 comes from; the basic state pension is £107.45 per week (x53 = £5694.85per annum) so where does the other £5,000 come from?

Of course the problem with dealing in averages is that they so often cloud the true picture. For example, you can have six football matches which total 18 goals - the avaeage goals per match is, therefore, three but, of course if one match ends up with a 10 goals to 2 that average is meaningless.

One of the major problems is that not all pensioners are treated justly, fairly or equally by the UK government.. If the pensioner lives in the UK, EU or a select group like the USA or Israel or the Phillipines the state pension is uprated annually. If however, the pensioner lives in a frozen country like Australia, Canada or the Falkland Isles their pension is frozen at the rate it first becomes payable in the host country. There is no justification for this discrimination - legally, morally, financially or administratively, Prime Minister Cameron, Deputy Clegg, Chancellor Osborne and Pensions Minister Webb all vowed when in opposition to abolish this iniquity...but now in government....

Annie retired on a full UK state retirement pension in the 1970's which amounted to £6.20 per week. Widowed she went to live with her sole relative, her daughter, in Australia. She has just celebrated her 100th birthday and her pension is still £6.20 a week! Justice, Fairness and Equality, gentlemen?

And if Annie is getting just £328.00 per annum just who is getting the £10,672 to balance the average?

Lies, damned lies and statistics!

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Jun 16, 2012 at 21:45

Ref: Rose G

I do so agree with your last two paragraphs, especially the first of the two.

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