Millions 'in dreamland' of relying on state pension

Published on Friday 30 October 2009 20:29

MORE than a third of workers plan to rely on the state pension in retirement even though it is worth less than a third of UK average earnings, a report out today claims.

State pension provision in the UK is the lowest in the G7 group of countries and with membership of company schemes declining, pensioner poverty is set to soar, according to the Axa report. As a proportion of UK average earnings the state pension, at just 31 per cent, compares particularly poorly with that in France, Canada and Italy. Italians retire with a state pension worth 68 per cent of their average earnings, while French and Canadian workers get a state pension of 51 and 43 per cent of earnings respectively.

The report also found that almost a fifth of 25 to 34-year-olds believe their property holds the key to a comfortable retirement, despite the mortgage market crisis. Almost a quarter of UK workers believe they will still have non-mortgage debt to pay off in retirement, and 18 per cent expect to be still paying off their mortgages.

Graeme Forbes, chartered financial planner and director of Intelligent Capital in Glasgow, said anyone expecting the state pension and other means-tested support to provide a comfortable retirement was living in "dreamland".

"With the collapse of 'alternative' retirement investment opportunities such as buy-to-let properties, unless they have a planned programme of significant monthly saving, most people will end up with an uncomfortable retirement," said Forbes. "Workplace pensions, with 'free' employer contributions and tax boosts to personal contributions, is arguably the best way to save for the future."

But 10 per cent of workers have reduced their workplace pension payments over the past year, said Axa. And new research from PricewaterhouseCoopers has revealed that 72 per cent of Scottish workers do not trust pensions as a means of saving for retirement, with more than half demotivated by measures such as salary or working hour cuts.

Government plans to introduce personal accounts, featuring auto-enrolment into workplace pensions for low-income workers, are designed to boost workplace saving. But Axa questioned the likely impact of the scheme, to be fully implemented by 2016. The Pensions Policy Institute forecasts a ten million rise in the number of savers in defined contribution workplace pensions by 2020 as a result of auto-enrolment and a continued shift from final-salary pensions. However Axa claimed that increase could amount to just 800,000, citing concerns over the impact of means-testing on incentivising workers to save.

Steve Folkard, head of savings and pensions policy at Axa, said: "The erosion of the once sound company pensions infrastructure in the UK, which supported the retirement needs of the working population over much of the 20th century, presents a future government with a massive challenge."