UK state pension is the least generous amongst advanced economies

Kyle Caldwell
6 December 2017

The UK’s state pension is the least generous amongst advanced economies, according to a report from a respected think tank.

A study by the Organisation for Economic Co-operation and Development (OECD), which compared global pension systems, found that the average UK pensioner receives 29 per cent of their working income in retirement from mandatory pension schemes. 

This figure is the lowest amongst the 35 OECD advanced economies that were analysed. The average so-called ‘net replacement rate’ for the 35 countries is 63 per cent. The most generous is Turkey, at 102 per cent. The Netherlands and Portugal are ranked in second and third place. 

The findings highlight the importance of not relying on the state pension. Instead, other avenues should be pursued, including workplace pensions, making the most of the employer contribution on offer. 

Thanks to auto-enrolment, employers of all shapes and sizes have an obligation to offer a minimum of 3 per cent from April 2019 onwards, while employees will be required to save at least 5 per cent, giving a grand total of 8 per cent. 

Various experts, however, including former pension minister Steve Webb, argue that these minimum contribution levels, while welcomed, need to be raised. If that doesn’t happen, pension savers will need to work into their late 70s if they are to achieve the same level of income in retirement as their parents.  

Concerns over future pension provision were raised in the report, due to increases in life expectancy. Most countries, including the UK, have moved to increase future retirement ages, but some countries are standing still. 

According to the OECD a 20-year-old entering the workforce in France will be able to retire as early as 63. Those in the UK will have to work an extra five years, until 68. The Netherlands and Italy top the table, with a future retirement age of 71 for 20-year-olds. 

Angel Gurría, the OECD’s secretary general, says: ‘The challenges of financial sustainability and pension adequacy mean that bold action from governments is still needed. The world of work is changing fast, and policymakers must ensure that decisions made today take this into account and our pension and social protection systems do not leave anyone behind in retirement.’ 

Responding to the OECD’s report a spokesperson for the Department for Work and Pension said: ‘We have taken decisive action to address our changing population through a new, generous state pension, retaining the triple lock and protecting the poorest through pension credit - reducing pensioner poverty close to historically low levels.

‘But there’s always more to do. Thanks to automatic enrolment, around 11 million people will be newly saving or saving more into a workplace pension by 2018.’ 

This article first appeared on our sister website Money Observer.


In reply to by R. B. Woodcock (not verified)

I work as support staff in a state school (so most people would class as public service), my pension is no longer final salary, and doesn't kick in until my state pension age of 68 so it is incorrect to assume all public service pensions are final salary

In reply to by anonymous_stub (not verified)

It's about time the government grasp the nettle of Public Service pension. Guaranteed pensions based on final salary are now virtually non-existent in the private sector. Why should the Public Sector retain this enormous advantage at the cost of all other workers.

In reply to by R. B. Woodcock (not verified)

Of course I agree with you. I've just posted a comment saying we should ALL pay a little more income tax, and stop what is an unaffordable continuing huge pension pots SOME of the highly paid (head teachers NHS managers and the like in local government plus some of our doctors) Raise their tax or cut down their pensions.

In reply to by anonymous_stub (not verified)

I cannot understand why the Government do not put up income tax rates. I am 82 and have a very reasonable state and works pension. I could and should be paying more tax. The NHS NEEDS it, and so does social care NEED it. I'm sure there are very many people in the same position as me.IF YOU CAN AFFORD IT, PAY IT.

In reply to by T Elliott (not verified)

Surely not. If I didn't receive my state pension until 68 I would have claimed my company pension early -final salary or money purchase. The state pension seems to be raised higher and higher.

In reply to by anonymous_stub (not verified)

What about the contributions people pay into National Insurance? Where has all that money gone?

In reply to by anonymous_stub (not verified)

What about the national insurance we pay into the state pension? With population increases the more are paid in?

In reply to by anonymous_stub (not verified)

Lies, damn lies and statistics! On the face of it an average UK worker receiving a state pension of 29% of their working income (the ‘net replacement rate’), compares very badly to workers in Turkey, who get 102%. But this doesn’t take account of the average working income in the UK vs Turkey? 29% of a lot may be much better than 102% of very little.Secondly, The Netherlands is also ranked highly. Maybe it can afford to be so ‘generous’ if, according to the OECD, a 20-year old entering the workforce now will have to wait until they are 71 to start to receive their pension!The article would have been much enriched if it had included all the figures.

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