Here’s why the UK’s state pension is the least generous across the G7
The research placed the UK’s state pension at the bottom of the pack compared to other G7 countries; British pensioners received on average only 22 per cent of their pre-retirement income from the state pension.
Data from asset management company Fidelity International shows that this figure falls short when compared directly to 76 percent in Italy or 58 percent in France.
But the research also shows that there are large differences in how retirement income is financed, what other services are paid for by retirees, and how retirement income is calculated for individuals in each of these countries; This means that a direct comparison is not always completely clear.
“It’s important to be careful when drawing direct parallels; each system has its own rules and financing mechanisms,” said Marianna Hunt, Fidelity’s personal finance expert. “For example, in the UK, today’s state pension is largely funded by National Insurance contributions, while in Italy employees contribute around 9-11 per cent of their salary to social security, which also covers pensions and other benefits.”
The difference is that in the UK the state pension depends on the number of years worked etc. It can also be seen by the fact that there is a determined amount depending on; In France, for example, the 25 highest-earning years of a person’s working life are used to give an average from which the pension amount is then derived – up to half that figure, along with minimum and maximum amounts and other criteria.
Here in the UK, the state pension acts as a basic income stack to which people can hopefully add additional monthly money through private or workplace pensions or other assets such as investments or property. Elsewhere it may be the main part or all of the retirement income.
Making workplace pensions an opt-out policy has been successful in enabling British people to save additional money for the future, but it is predicted that many people will still fall short of having the money to maintain a comfortable lifestyle in retirement.
New data from Standard Life suggests people believe they will have to retire at least four years later than they ideally would like due to financial pressures, while more than half (53 per cent) of those surveyed said they were worried they were not saving enough for retirement.
New research from Fidelity shows the state pension age is younger in the UK than in Italy or the US; but the average number of years a person was expected to receive a state pension (19.8) was significantly less than in Canada, France, Italy or Japan.
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According to Fidelity data, the ratio of the UK government’s spending on state pensions to GDP is 4.7 percent; This rate is the lowest in the G7, while Italy is the highest with 12.8 percent. Despite this, there are concerns that, with the state pension set to increase significantly from April, the amount spent on this pension without raising the retirement age to 80 will become “completely unaffordable”.
Additionally, having the NHS means the UK has a healthcare service (an especially important service for pensioners) that is almost completely free at the point of contact, in stark contrast to the US or Canada or even the European members of the G7.
