UK State Pensioners are the poorest in Europe
By Jayne Warren - 13/11/2007
New research shows that an average worker retiring this year would receive a State pension worth just 17% of their salary, compared with an EU average of 57%. Even in the Netherlands - the country with the second lowest payment - the State pension is worth 30% of the average retiree's salary - almost twice the figure in the UK.
The research (by Aon Consulting) also showed that it was only the very lowest UK earners with no savings whatsoever who were entitled to anything coming close to the pension levels offered in other countries. The gradual shift away from the state provisions towards employers and individuals meant the UK had the largest funded private pension system in Europe - but mis-selling scandals and rule changes had knocked confidence in them.
The report compared the pension systems in 25 of the EU's 27 member states, and found that the UK was one of only seven countries where the spend on state pensions was likely to remain below 10% of GDP. Top of the pensions league for the second year running was Denmark. Their state pension scheme offers a 75% salary replacement for the average earner, while low earners get a pension worth 120% of their working salary, which effectively means that they get a pay rise when they retire.
However, life expectancy in Denmark is relatively low at 81 years, which eases the pressure on the state scheme. In Europe as a whole, the countries facing the worst problems are those with a low average retirement age and a rapidly aging demographic. This balance will place a huge strain on social security issues, which, if left unaddressed, will create a pensions system that is completely unsustainable.
The pensions reform minister, Mike O'Brien, has defended the UK system, saying that it was "misleading" to look at the state pension in isolation. "In the UK we are reforming the system to make the state pension simpler, fairer for women and carers, and more generous, whist remaining affordable."
He maintains that proposals in the next pensions bill will make it easier for millions of people for their retirement through an automatic enrolment into a qualifying workplace scheme or personal accounts. Changes in the UK pension system, including raising the state pension age to 68 by 2046, are currently going through parliament.
However, Aon also pointed out that although the UK state pension was the least adequate in Europe, it was among the most affordable in the long-term, adding that the relatively high levels of immigration in the UK was boosting the working age population.
Separately, a report from the Pensions Policy Institute (PPI) has said means-tested benefits were discouraging people from saving for their retirement, and are calling on the government to disregard the first £12 a week people receive from private pensions when calculating their entitlement to mean-tested help.