LONDON (Reuters) - Almost two-thirds of people living in Britain today are likely to see a 60 percent drop in their income when they retire over the next 40 years and a plummeting quality of life, a report said Thursday.
The 15 million households earn between 18,000 and 44,000 pounds each and represent roughly 35 million people, according to the study by London’s Chatham House think-tank.
Their incomes will take the biggest hit from retirement compared to the lowest and highest 20 percent of earners.
“The UK has a distinct problem with middle-income earners who are failing to save enough and are likely to find the drop in income during retirement unexpected and unacceptable,” said Paola Subacchi, one of the report’s authors.
The report says the problem is worsening because of a shift from defined benefit (DB) pension schemes to defined contribution (DC) schemes, which do not guarantee a predetermined retirement income.
“Furthermore, the recent recession has highlighted how vulnerable wealth and pension funds are to economic shocks and reduced annuity conversion rates,” it adds.
Middle-class Britons’ meagre savings mean they will have to rely heavily on the relatively small state pension, which “only just ensures a minimum standard of living,” Chatham House said.
“Some may even slip into poverty,” the report adds.
If the economy fares worse over the next decades than most economists forecast, retirement incomes of the so-called squeezed middle will be pressured even more, it adds.
The study examines how future pensioners will be affected in three scenarios: persistently low interest rates, low property price inflation and an accelerated switch from DB pension schemes to DC schemes.
It also suggests a number of government policies to help reduce the shock from falling incomes in retirement, such as guaranteeing minimum annuity rates, providing matching schemes for pension contributions and improving access to financial advice.
The report follows a warning by Labour leader Ed Miliband that low and middle-income families in Britain are facing a “cost of living” crisis which will persist for years to come.
Reporting by Olesya Dmitracova; Editing by Steve Addison