Britain 'miserly' on pensions

BRITAIN'S pensions system provides one of the lowest retirement incomes in the Western world for people on average incomes, a report has revealed. Full-time workers on the average wage of £22,000 a year can expect to receive just 48% of their after-tax earnings.

In Luxembourg, by contrast, an employee on average earnings can expect to get a pension worth 110% of his wage - meaning the pension is actually worth more than earnings before retirement.

Britain is ranked 26 out of 30 countries for post-tax pensions according to analysis by the Organisation for Economic Co-operation and Development

Austria, Hungary, Italy, Spain and Turkey provide comparatively generous pensions, with rates above 75% for workers on average incomes. The average across all OECD countries was 69% of pre-retirement income. The report brands Britain's State pension system as 'among the least generous' in the developed world - though it also notes that it is relatively cheap to run.

The Tories have accused Labour of 'negligence' over Britain's pensions time-bomb. Chancellor Gordon Brown has been challenged on how the Government planned to tackle the crisis - and whether another rise in National Insurance will be needed to pay for it.

Experts say millions will have to save more, taxes will have to rise or workers will be forced to continue beyond 65 to help close a £57bn shortfall in public and private pensions provision.

Senior Labour MPs are uneasy that the party entered the General Election campaign without any firm commitments on how to deal with the problem. Instead, they have said any decisions will have to wait until the Government's pensions czar, Adair Turner, completes an investigation this autumn.

The OECD analysis suggests people with low earnings fare best from Britain's existing State system. The rise in means-tested pensions means that people on half average earnings can expect a pension of 78% of their pre-retirement income after tax. Better-off people can expect little from the state. Someone on twice average earnings can expect to get only 30% of his or her income from pensions.

Shadow Pensions Secretary David Willetts said: 'This is yet further evidence of why we have to boost the incentives to save in society today. Under Labour, savings have plummeted. That is why the next Conservative Government will add £10 to every £100 a person saves towards their pension pot. Only by encouraging more people to save can we ease their anxieties about security.'

Edward Whitehouse, pensions analyst at the OECD, said Britain's pensions system is now 'fiendishly complicated' thanks to reforms by successive governments. He said there is a case for moving back to a flat-rate State pension, with people being encouraged to make their own provisions on top.

According to the latest research, private sector pensions have lost nearly three-quarters of their value since Labour came to power.