Average
retirement income to be below minimum wage, says Fidelity
Leah Milner, 30 May 2008
The average UK worker will retire on £215 per week -
less than the current minimum wage, research by Fidelity International
has found.
The Fidelity Retirement Index shows that the average employee
will face a 53 per cent drop in income when they enter retirement.
Fidelity calculates that the £215 weekly retirement
income that awaits the average UK employee is below the £220
per week that a worker on the minimum wage would earn for
a 40-hour week.
It is also less than half of the average weekly wage of £457.
The Fidelity Retirement Index shows a slightly more severe
drop income than last year, when the average UK worker was
on course for a 50 per cent drop in income at retirement,
but Fidelity says overall prospects for retirees could rapidly
deteriorate as defined contribution schemes replace defined
benefit schemes.
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Members of DB schemes, whose pension is commonly linked to
final salary and length of service, expect to retire on two-thirds
of pay after 40 years of service, says Fidelity.
But workers in DC schemes, where retirement income is tied to
contribution levels and investment performance, are on course
for just 38 per cent of salary in retirement - a decrease
of 62 per cent for someone on average earnings.
Fidelity says the UK does not compare favourably with other
countries, as British employees are on course to receive 47
per cent of their salaries in retirement, while Germans are
likely to get 56 per cent and Americans are on track to receive
58 per cent.
Fidelity International Retirement Institute president Simon
Fraser says: "There's nothing inherently wrong with defined
contribution pensions. In fact, DC is arguably a better solution
for today's highly mobile workforce.
“But the move from DB to DC is often accompanied
by a review of contribution levels, sometimes to the detriment
of employees. It is a shocking thought that, if this is
not corrected, we could see the emergence of a generation
of private pension paupers."
www.moneymarketing.co.uk
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