Fidelity International has urged savers to take control of their retirement savings, as the UK State Pension ranks the lowest among G7 countries.
Retirees in the UK receive just 22% of average earnings from the State Pension, significantly lower than Italy (76%) and France (58%).
While in France and Italy, more than 70% of retirees’ income comes from public pensions, in the UK this figure falls to just 40%, placing far greater emphasis on private saving.
Marianna Hunt, personal finance specialist at Fidelity International, said: “Italy offers by far the highest replacement rate, with an average retiree receiving around three-quarters of their working salary from the State Pension. At the other end of the spectrum, the UK provides the lowest level of income support, with British retirees receiving less than a quarter of their pre-retirement salary.
“These gaps reflect very different approaches to retirement provision. In the UK, the State Pension acts as a foundation or top-up, while in France and Italy it represents the mainstay of retirement income. That means, in the UK, it is critical for individuals to save into private and workplace pensions to secure their financial future.”
There are also clear differences across the G7 in how long retirees can expect to receive the State Pension. In France, it’s almost 27 years compared with just under 19 years in the US. Longer life expectancy in Japan means more than 24 years of payments, while in the UK this figure is 20 years.
Pension savers also need to consider healthy life expectancy – the time spent in good health after retirement. France and Japan lead the pack, with retirees in these countries expecting around 16 healthy years in receipt of the State Pension. In contrast, retirees in the UK, Germany and Italy should expect fewer than 12 healthy years of State Pension and, in the US, fewer than nine.
Hunt continued: “Those years are when people are most likely to travel, pursue hobbies and enjoy the lifestyle they’ve worked for. For UK savers, it underlines the importance of building strong private and workplace pensions to make the most of those vital years or even retire earlier than state pension age, if possible, to enjoy as many healthy years as possible.”
While caution has to be applied when drawing direct parallels, with the UK’s State Pension largely funded through National Insurance contributions compared to social security contributions in Italy, those in the UK need to be aware the onus is on them to make up the shortfall.
According to Fidelity’s Be Invested research, only 42% of UK investors plan to increase their retirement savings over the next year, rising to 46% among those aged 55 and over. This means the majority of savers are not adjusting their contributions which could present a challenge for the UK’s retirement landscape.
Fidelity said a 1% increase in contributions could have a meaningful impact on retirement savings. Based on a retirement age of 68, for a 45-year-old earning the average full-time salary of £37,430, raising contributions by 1% could add more than £22,000 to their retirement pot.
Hunt added: “Our research shows that the UK’s State Pension provides a much lower level of income compared with many other G7 nations, which means the responsibility for funding retirement falls more heavily on individuals.
“This is where private and workplace pensions play such a critical role. The good news is that small, consistent changes can make a big difference – even increasing contributions by 1% can add tens of thousands of pounds over a working life. For UK savers, taking steps now to build stronger pension savings is the best way to make the most of their healthiest years and secure the retirement they want.”
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