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How does the UK state pension compare worldwide?

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Our latest Which? Money investigation looked into state pension systems in 15 different countries. Where do you think the UK sits in relation to its counterparts?

It’s extremely difficult to make a like-for-like comparison between nations’ pension schemes, as each country has different qualifying criteria and ways of calculating your entitlement.

However, despite this, our snapshot survey shows some marked differences.

Pension schemes are worlds apart

While the Swedes enjoy a maximum state pension of just over £25,000 a year, South Africans get a maximum of £1,044. And although Britain’s current basic state pension of around £5,500 a year leaves it near the bottom of the league table, government reforms will see this rise to almost £7,500 (in today’s money) in 2016.

It’s important to remember that you can’t look at a country’s state pension in isolation. How much tax people pay and what they get for their taxes are inextricably linked to the issue of pensions.

Another vital consideration is the average salary for each country. For example, a yearly pension of £1,044 in South Africa might not seem quite so low when you learn their average annual salary is £7,421.

Support for private pension saving is another key issue. Like Sweden and the Netherlands, the UK’s private pension coverage boosts its meagre state pension.

Pension ages on the up

State pension age is also a controversial subject in the UK. For many years it was 65 for men and 60 for women, but it’s increasing to 66 for both genders by 2020, to 67 by 2028 and will rise in line with life expectancy thereafter.

But the UK isn’t alone in increasing state pension age – of the 34 Organisation for Economic Co-operation and Development countries, 28 others intend to do the same.

*The state pension age may have changed since the date of publication for this article. For the latest advice and information on the state pension, check out the Which? State Pension calculator and advice guide.

Comments
Guest
littleoldlady says:
27 June 2015

re: Leveret 27May 2.35pm I’ve also been fascinated having come to the discussion to find out the (prior to any recent changes) the Greek pension levels !
A couple of related points – can anyone remember if a reasoned argument was put forward before the Charities Commission or whoever decided that many small “pay-in, get a bit when in need” were not worth their time and were forcibly closed ? My husband and I used to pay into one such (about a tenner a year !) which was designed so that if one was ill, it paid that amount per week. In this case it didn’t close as such but was subsumed into a more “normal” insurance firm and we never became eligible to receive anything out of it. However, my father who was subject to regular bronchial attacks swore by the scheme (run I always said so cheaply it prbably managed with only 2 staff!) I think the change was made circa 1975-82.
Also, when was (and again, does anyone remember seeing a justification) it decided that is a firm for eg had a private pension scheme, the built-up funds should not exceed a certain amount or they would be appropriated (as tax, I believe). This had the effect of companies giving first themselves, then also their workers, “pension holidays”. Again I’m uncertain as to the date, possibly around the 1990s. In my husband’s and his colleagues case, the effect of these “holidays” meant a few years later when the firm needed to downsize its staff it was a while before it became clear that the lowered pension fund (payments now being re-instated from the workforce) made even less by generous early retirement schemes for the more senior staff was now getting too small under the NEW regulations that all pension funds must equal (don’t know how it was officially expressed) ALL the requirements for the existing pensioners (whether early-retired or full-term) firstly, and then the remaining workforce when their time to retire came, otherwise the scheme would be closed (by then, it already was, for newly-employed staff) and those who had paid in but still awaiting retirement would have to take their chances with what money was left, or the whole scheme (thank goodness there was SOME sort of fall-back, thanks I gather to the actions of Robert Maxwell relating to his business’s pension fund) would be taken over by the Pension Protection Fund, at a cost of (it worked out at about 10% off everyone’s I think pension) if no other “commercial” pension scheme would let the firm give up to it – given the number of firms closing their pension schemes at the time, this last was a hopeless possibilty. The early retirees in particular fought hard against it I understand, but eventually the scheme was indeed resued by the PPF.
I’ve described things at leangth because some readers may not have heard of these wee upsets (otherwise known as the Laws of Unintended Consequences) but my point is – does anyone remember any PUBLIC discussion/awareness of these governmental ideas, and the rationale behind them ?
There is also possibly (only possibly, please don’t panic yet people as I may have missed a nice large parachute) another pensions drought en route. Various public bodies (eg local government covering libraries) used to rely on regular payments in being certain (ie, the then known as rates) to pay for things as and when the need arose – an eg being buildings/stock insurance for libraries – lose to a fire, say, replace from existing or future monies rather than pay via insurance – the authorities concerned being large enough not to need to fork out unnecessarily for it (the still had to pay for injuries et al I assume). So far as I am aware, for many years there were no “funds” held specifically to pay the future pensions of civil servants, teachers, or local authority officers. Then – and I don’t know the dates NOR the rationale, everyone had to have an identifiable and viable pension FUND. Um. Well, I’ve been told that my provider has a big enough overall fund to pay my (currently £350 per calendar month) pension. But – doesn’t the fund have to keep being topped up by existing staff’s contributions (or a VERY good investment programme)? Local authorities are shedding staff – all the libraries near where I live are asking for volunteers to help keep them open, for example. The returns from the equities markets have been miserable recently. Just how “gold-plated” ARE public, as opposed to private, pensions ? Just a thought, all you who resent them.
Just to add to John West’s comment of 26Mar 15 at 11.52pm – I agree. My (large) house needs major attention. Without it, if I sell I would just be able to afford to buy into a single room in a local “over-60s” block, provided the weekly etc fees don’t rise too fast. From the photo, I think the person taking it was standing in the wardrobe. I’d rather die. Also, all my family are in London, miles away. There’s no affordable accommodation there except via various schemes – every one of which requires one to be already living in the correct borough. I’ve been told to rent privately for 2 years in order to get onto “the list”. I think that would be too risky – I could get through the house sale cash before getting in anywhere, and not have enough for those fees etc. Same thing with going further into the country – a few lovely retirement “villages”, but high get-in costs, monthly fees (and again, all food etc is pay-for not free!) plus the kicker that if it proves unsuitable, you have to pay a (increasingly high) percentage of what you sell for, towards their capital fund. Other schemes mean you never actually own the property, but can increase your “stake” (all I have seen so far would take the value of my house upfront) to a maximum of usually 75% (which means they take 25% of the selling price if you move out) and again there’s usually ground rent or even straight rent to pay. So “downsizing” isn’t always an option for the elderly, they’re not simply being greedy in their “too-large” homes.
It isn’t simply a matter of how much the state pension should be, nor even how tinkering with pensions generally can have adverse effects so ideas should be put out into the marketplace, as it were, for discussion and a bit of devil’s advocating, before being implemented. We should look at other countries to see what they do, or what would/could be done, to make the inhabitants feel secure, and whether that is translatable to the UK. I hadn’t known, for example, of the extent of the erosion of rent protections etc in recent decades in the private sector which has probably helped pump the desire for buying one’s council place if at all possible, which ends up leaving one less place for renting. There’s nothing so unwelcome as the feeling one might have to keep moving (downwards) to afford a home, no matter what one’s age. The level of uncertainty over this as well as many other things in our society is what makes people dissatisfied, and that is what should be addressed, holistically (sorry !) rather than via individual initiatives which at best only make things better for one group and all too often are either not sustainable or simply prevent the needs of another from being regarded. Too much is top-down thinking and with too little genuine discussion.

Guest

Phew! That’s quite a list of questions going back over several decades. There might not be anyone around who can fill in all the details for you. I’ll have a go at some of the things I have some recollection of but I think you would need to consult some experts for the full answers.

a. You mention “pay-in, get a bit when in need” funds. You are probably referring to loan clubs, friendly societies, or credit unions. A lot of loan clubs were unofficial and entirely unregulated; some of them were actually small businesses run by one or two proprietors, entirely profit-making and with virtually no beneficent purpose whatsoever. I think many folded as a result of galloping inflation in the early seventies and eventually they were put out of business by new financial regulations. Friendly societies are regulated by the Charity Commission and the larger ones have a long and proud tradition of looking after their members. Many of the smaller ‘industrial’ ones either wound themselves up because their membership declined or were consolidated to provide continued viability. Friendly Societies still have an important role in meeting the savings needs of large numbers of people. Admission to membership by eligibility is a key feature to safeguard the funds and a regular and reliable contribution record is essential, but there are tax advantages up to certain limits. Credit Unions have been in decline but are now developing again. Again there are strict controls on participation, contributions and withdrawals but they meet a need and their terms are much better, for those who are eligible, than pay-day lenders. Friendly Societies and Credit Unions are mutual non-profit-making organisations which nevertheless are required to maintain appropriate reserves.

b. I can’t remember corporate pension funds being ‘taxed’ on excess scheme reserves. This might have been an emotive way of describing the the implications of transferring too much profit into the pension fund potentially as a tax shelter. Certainly the management of corporate pension funds for commercial financial advantage has been a feature of business life for generations and many companies did indeed take a ‘pension holiday’ during the good years, usually based on over-optimistic actuarial assessments. Unfortunately, when the bad times came and many companies went to the wall, large numbers of employees discovered that their pensions were inadequately funded or their funds were effectively vacant. For those closer to retirement this was catastrophic and the government’s response was new laws on the safeguarding of employees’ interests and funding margins, tighter regulation and compliance, and a state reserve fund [the Pension Protection Fund], Many years after the infamous ‘pension holiday’ era, a large number of corporate pension schemes still have big holes in their funds which they have to fill by a planned allocation of profits year by year. Some company takeovers take place for just one pound because of the ongoing underfunded pension scheme liabilities which the new owners have to assume.

c. Many companies still operate executive pension schemes that have benefits superior to those available in the general schemes for the rank and file. The funds for both schemes should be ring-fenced to avoid collateral damage but that is no comfort to the worker if his scheme is too depleted to meet its liabilities but the directors are feather-bedded for life. Due to the measures mentioned in b. above this is a diminishing concern. So long as the schemes comply with current legislation, the alteration of schemes is a matter for shareholder approval and the ultimate sanction of the Court. Very few companies still have final salary [defined benefit] schemes available to new staff although they are virtually universal throughout the public sector. Most companies with a pension scheme operate a money-purchase [defined contribution] scheme and increasingly all employees are included or transferred into that type of scheme.

d. Much of what happened within the corporate pension environment went on without the intervention or prompting of the government of the day. Companies were left very much to run their own schemes and they appointed trustees who might not have had much specialist knowledge about what they were doing so were in the hands of consultants and advisers [for substantial fees of course]. They also followed corporate fashion.It was classic short-termism. The trades unions, to the extent that they were involved in the first place or were aware of what was going on at all, were completely outsmarted on these matters and did not understand the implications for their members of the changes being made.

e. So far as I am aware, civil service pensions are funded from current government revenues. Local authorities, teachers, the police, fire services, universities and many other public bodies have accumulated pension funds with healthy balances and are effectively protected from default through the rateable hereditament of the employers [the Council Tax base] or the security of the government’s covenant. In comparison with today’s private sector schemes, public sector pensions are certainly gold-plated, even after recent changes which have raised the employee contribution percentages. Apart from anything else they give colossal peace of mind which has to be worth a lot. I do not know the situation regarding teachers whose school has transferred out of local authority control – I think they must be entitled to remain in the teachers’ superannuation scheme otherwise the policy would have been a non-runner. Although local authorities are at last having to cut their suits according to their cloth, with an inevitable reduction in directly employed staff, this should not adversely affect the pension entitlements of those who remain. Local authorities have to make up any shortfall in pension fund provisions and this is a significant charge against their Council Tax revenues; this is highly controversial because people with inadequate pensions themselves are having to subvent the pensions of municipal workers who might – notwithstanding their protests – already be enjoying preferential terms and conditions of service.

f. Thank you for adding your personal experiences to the points I was making in my contribution of 26 March 2015 (11:52 pm). I agree with all the points you have made in the remainder of your comments and believe the implications for our ageing population are extremely serious and receiving insufficient attention. I often wonder how many people in their sixties and seventies have really worked out how they are going to manage over the rest of their lives and have put the requisite plans and resources in place. Given the shortfall in new housing provision in all forms I feel sure that a lot of people are going to be in great difficulty. The lack of new housing has an impact on the release and cascade of other properties more suitable for older owners enabling them to reduce their running costs and undertake the necessary maintenance. As you say, there is a real need for a lot more informed discussion on the approaching problems; even people in their fifties who are attempting to make forward provision by down-sizing find that without access to mortgage finance they cannot make the arithmetic work for them. Equity release and other schemes that are funded from the transfer of people’s major asset give poor yields and leave people in a precarious position as rising costs make their initial plan unaffordable in later years.

I seem to have lost sight of the ‘how the UK state pension compares worldwide’ in all of this but we need to appreciate the bigger picture before we can address the adequacy of the state retirement pension on its own.

Guest
E macdonald says:
21 June 2016

What nonsense about public sector gold plated pension schemes. The majority of public sector workers are admin and the average salary is 16,000 your not going to get much of a pension from that

Guest

In comparison with many other occupational pension schemes public sector schemes certainly are gold-plated. Many people in other occupations earn less than, say, local authority workers for doing similar jobs with the same or greater responsibilities and they have far less certainty of their pension out-turn. The public service pensions generally provide a guaranteed percentage annual payout based on the best of the last three years’ salary of qualifying service. The funds themselves cannot become insolvent. There are superior survivor benefits and other conditions. Most if not all are index-linked. For many workers outside the public services there was often no employer’s pension scheme to join and with low wages they could barely afford to make any independent provision.

Nearly all pensions across all sectors are related to the worker’s salary level in some way. I remain to be convinced that overall public service employees suffer lower remuneration for the same input hours and also taking account of superior conditions of service like holidays, sickness pay, and annual increment-based salary schemes. The proof of this is the attitude of the trade unions to the compulsory tendering of local authority services in the 1990’s which they regarded as an onslaught on the excellent pay and conditions which they had secured for their members over time.

Where we live in Norfolk middle-ranking administrative personnel in local councils are paid in the range £20,000 to £25,000 [depending on responsibility level] for a 37.5 hour week. They make a compulsory contribution to their pension fund but the employer tops it up at tax-payers’ expense [thus public sector pensions are subsidised by people who may be on much lower incomes]. The current brake on public sector pay rises is possibly bringing them closer into line with private sector employees but the other non-pay conditions remain attractive.

Guest
C Macready says:
11 October 2017

I think if you look closer you will find the “Gold plated pension’s” as you put it are mainly the benefits of senior management most of whom have not a lot of work anyway during the working career due to lots of posts being created while the real working posts were reduced and you can also put politicians in to that mix. contrary to your belief that public sector workers have higher wages I can assure you this is not the case I worked for the MoD for 17 years and it was the lowest paid job I had for decades but it was steady and was only a short distance from home the only reason people stayed was the contributions by the employer helped make up for the shortfall and as regards to the employee contributions these represent a fair portion of the wage my “Gold plated” pension after 17 years and having worked as a civil service craftsman doing numerous hours every week including weekends with my contributions rising with overtime worked is now £60 per week. Don’t believe everything you read.

Guest

I agree with your analysis of lower paid workers, but I believe John is referring to the staff in local and central government who benefit, and who also seem to have superior redundancy packages.

I think all pensions – private and public – should be available on the same basis and if people wish to make further contributions, these should be out of their own pocket and not the taxpayers. I also consider that higher-rate tax relief on contributions should cease. I’m in two minds also that since the State Pension is a non-contributory one, there should be a retirement income level above which this is tapered to zero and the savings applied to those on the lowest pensions.

Guest