The minimum-wage retirement

By MICHAEL CLARKE
Updated: 11:21 EST, 5 December 2008

THE average UK worker faces a retirement income of less than the minimum wage unless they up their level of savings.

According to fund management group Fidelity, the average household will experience a 60% drop in income when the main earner stops working.

Based on the Office for National Statistics' average annual salary of £22,900, this would mean a retirement income of £9,618 a year. This is less than someone who works more than 40 hours per week on the minimum wage, which is currently £5.05.

Fidelity's president of institutional business Simon Fraser said: 'Unless workers, employers, the financial services industry and the Government pull together to find a solution, we could have almost an entire generation of retirees living off State benefits.

'We all know that more people have to save more, but we must also acknowledge that the industry and Government can do more to help people to save not just more, but to save in the right way.'

The research revealed a huge disparity between what people expected to receive from their pension and what they wiull actualy have to live on. Many workers believed they would receive two-thirds of their salary rather than less than half.

Half of respondents said that the level of income would not be enough to cover the cost of their expected standard of living.

The type of pension scheme workers are able to join will have a major impact on their retirement prospects. Those in defined benefit (final-salary) schemes will receive an average of 81% of their annual pay packet. Those on less generous defined contribution schemes, which depend on the performance of their investments, will have just 38% of the final salary to spend.

The research also found that women lagged behind men in their retirement preparation, with women on track to receive just 40% of their pre-retirement income, compared to men's 47%.

Those living in London will experience the steepest drop in income, receiving just a third of their pre-retirement salary. People living in the Borders will experience the smallest drop, with the average worker receiving more than four fifths of their salary.

Simon Fraser added: 'We found that people had unrealistic expectations for retirement. They overestimated how much income their savings could generate and were hoping for a standard of living well above what they were on track to be able to afford.'