State Pension  

UK pensioners face sharpest income drop in retirement

Furthermore permitting lump-sum withdrawals has reduced the number of annuities being taken, the report noted. 

While annuities may not be the best option for many, removing the guaranteed income that it provides could increase future reliance on the old-age safety net, according to the OECD.

However, the OECD endorsed the “well-publicised Nest scheme”, which it said should help increase levels of financial literacy and awareness of the need to save for retirement, thereby reducing the risks.

Nest is the workplace pension scheme set up by the government especially for auto-enrolment.

Tom McPhail, head of policy at Hargreaves Lansdown, said: "We can see the UK’s first tier pension is pretty much the bottom of the world, on the other hand we have a better third tier private sector pension system than the rest of the world.

“The key challenge for the UK is going to be generation X. They won't have benefited from a generous defined benefit scheme and won’t have built up a big defined contribution pot either.

“For those after, those in the mid-30s, there is still time to do something for them.”