Average worker now faces retirement under minimum wage

The average worker now faces entering retirement on £215 a week – under half the national average earnings and below the minimum wage.

The Fidelity Retirement Index reveals Brits are now looking at a 53 per cent drop in income when they start taking their pension.

However, two years ago workers were looking at a 58 per cent fall in their income – but Fidelity international warns the move for defined contribution (DC) pensions to replace defined benefit (DB) schemes could lower retirement incomes further.

Members of DB schemes, whose pensions are commonly linked to final salary and length of service, expect to retire on two-thirds of pay after 40 years of service.

However, workers in DC schemes, where retirement income is tied to contribution levels and investment performance, are on course for just 38 per cent of salary in retirement.

Simon Fraser, president of the Retirement Institute at Fidelity International, said: "There's nothing inherently wrong with defined contribution pensions. In fact, DC is arguably a better solution for today's highly mobile workforce.

"But the move from DB to DC is often accompanied by a review of contribution levels, sometimes to the detriment of employees. It is a shocking thought that, if this is not corrected, we could see the emergence of a generation of private pension paupers."

While British workers are set to receive 47 per cent of their pay in retirement, Germans pensioners will be receiving 56 per cent, while Americans are on track to receive 58 per cent of their salary in retirement.

Mr Fraser added: "While the movement from DB to DC schemes isn't a uniquely British phenomenon, the maturity and significance of occupational pensions in the UK means that this trend is much more pronounced.

"With government still also committed to means testing, for example, there is a danger that the 'real' difference may be much greater for future generations of UK retirees than the headline figure suggests."