Research has placed the UK’s state pension at the bottom of the pile against other G7 nations, with British pensioners getting only 22 per cent of their pre-retirement income on average from the state pension.
That stacks up poorly when directly contrasted to the 76 per cent of Italy or up to 58 per cent in France, data from wealth management firm Fidelity International shows.
But the research also shows a wide variance in how retirement incomes are funded, what other services are paid for by pensioners and how retirement income is calculated for individuals across each of those nations, meaning a direct comparison is not always entirely clear-cut.
“It’s important to be cautious when drawing direct parallels – every system has its own rules and funding mechanisms,” said Fidelity’s personal finance expert Marianna Hunt. “In the UK, for example, today’s state pension is largely funded through national insurance contributions, whereas in Italy employees contribute around 9-11 per cent of their salary towards social security, which also covers pensions and other benefits.”
The variance is also visible by the fact the state pension in the UK is a set amount depending on the number of years worked and so on, while in France, for example, the 25 highest-earning years of a person’s working life are used to give an average, from which the retirement amount is then derived – up to half of that figure, with with minimum and maximum amounts along with other criteria.
Here in the UK, the state pension acts as a foundational chunk of income to which it is hoped people can add additional monthly money through private or workplace pensions, or other assets such as investments or property. Elsewhere, it may be the main or full amount of retirement income.
Making workplace pensions an opt-out policy has been successful in getting British people to save additionally for the future, yet it is still estimated that many people will fall short in having the money to maintain a comfortable lifestyle in retirement.
Additional recent data from Standard Life suggested people believe they’ll have to retire at least four years later than they ideally wanted to, due to finance pressures, while more than half (53 per cent) of respondents to a survey said they were worried they weren’t saving enough for retirement.
The new research from Fidelity shows the state pension age as being younger in the UK than in Italy or the USA, though the average expected number of years for a person to receive the state pension – at 19.8 – was notably fewer than for Canada, France, Italy or Japan.
UK government spending on state pensions as a percentage of GDP stands at 4.7 per cent, according to the Fidelity data – the joint-lowest in the G7, with Italy (12.8 per cent) being the highest. Despite that, there have been concerns that with the state pension due to rise significantly from April, the amount spent on it will be rendered “completely unaffordable” without a rise in pension age to 80.
Additionally, having the NHS means the UK has a health service – an important service for pensioners in particular – which is almost entirely free to use at point of contact, in stark contrast to the US or Canada, and even to European members of the G7.
