British workers set to retire on less than minimum wage

According to Fidelity’s third annual retirement index, British workers are set to retire on less than the minimum wage.

A typical worker will see their earnings fall by over 50% on reaching retirement to just £215 per week - less than the income of someone who works 40 hours a week on the minimum wage of £5.52 an hour.

Fidelity revealed that this means people are set to see their total income, including state and private pensions, fall by 53% on reaching retirement.

Last year, Fidelity’s index showed that workers could expect a 50% fall in income. However, the index, which is built on financial modelling and a survey of over 1,000 people, did show that the latest figure is an improvement on the first of the three years, when workers were in line for a 58% fall in income.

According to Fidelity, overall prospects could deteriorate considerably as defined final salary schemes are replaced with contribution pensions.

Those in defined benefit schemes have pensions typically linked to final salary and length of service, and can expect to retire on two-thirds of pay after 40 years of service.

However, members of defined contribution schemes, where income relies on contribution levels and investment performance, can expect just 38% of salary in retirement.

Commenting on the findings, Simon Fraser of Fidelity International, said there is nothing inherently wrong with defined contribution pensions. In fact, defined benefit is arguably a better solution for today’s highly mobile workforce.

However, the move from defined benefit to defined contribution is often accompanied by a review of contribution levels, sometimes to the detriment of employees, added Mr Fraser.

It is a shocking thought that, if this is not corrected, we could see the emergence of a generation of private pension paupers, concluded Mr Fraser.

Tom McPhail, head of pensions research at independent financial services firm Hargreaves Lansdown, is urging individuals to take responsibility for their own retirement provision.

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