Give the UK Credit for One of the Best Pensions in the World


Here’s something I’m pretty sure you don’t know: the UK has one of the best pension systems in the world. You don’t know because it’s almost never reported.

When you see headlines about UK pensions, they tend to focus on the level of the UK state pension relative to state pensions elsewhere. Read those stories and you’ll find that the OECD’s annual pensions report puts ours at the bottom of the pile when measured by its net replacement rate, the percentage of average work income it provides. We pay around 29%. The average in the OECD is 59%.

In the UK, that 29% is just the beginning of the UK’s bounty. There is much more support for those without private means. The minimum annual income for a penniless pensioner is around £18,000 ($22,349), for example (see to do the numbers), and that’s before you start adding in funded healthcare benefits 100% by taxpayers (although maybe this month, the less said about the NHS the better). Add those and the average state net replacement rate in the UK is over 40%.

However, to see the true joys of retirement income in the UK, we must turn to state-backed private pensions. Consider the latest figures on how much HMRC pays out in pension tax relief: last year, the number tipped over £50bn for the first time. This is an increase of around £15 billion in the last five years alone. Why? The UK has a long history of state-incentivized pension savings outside of the very generous defined benefit pensions offered to public sector employees. The Finance Act of 1921 allowed employers to deduct pension contributions from their taxes and gave employees tax relief on all contributions at their marginal rate of income tax, while allowing all assets within pension accounts to pensions had grown tax-free.

Also Read :  Atlanta Federal Reserve’s Bostic reveals inaccuracies in financial disclosures

That basic system is still in place, but since 2013 it has been vastly improved with the introduction of automatic registration, something very few other countries have. If you’re working, earn more than £10,000 and are over 22, a minimum of 8% of your earnings will go into a pension for you, and all the tax benefits mentioned above will be automatic. If the average person on an average salary works for 30 years and their pension gets, say, 5% growth per year on average, they will end up with a minimum of £250,000 when they retire. That’s not going to get you into luxury, but add that to your state pension and you’ve got an income of around £23,000 – more than 70% of the average UK wage rather than 28%. (The UK government puts the current average net replacement rate at 58%).

It could still be argued that this is poor compared to some of the European Union’s offerings, given that you have to make some pension contributions out of your own pocket rather than someone else’s. But there are a few other things to keep in mind. The first is time. You have to work for 35 years to get the full state pension in the UK. In France, it’s 42 years (and rising, if President Emmanuel Macron makes it to 43). In Ireland it’s 48. In the Netherlands it’s 50. Note that you can also collect your private pension (which most Europeans don’t) at 55. Most state pensions in most countries can only be collected once it’s ok. in your 60s.

The second is security. Most state pensions are paid-in, which means the government does not have an established pension fund. Just hope you have the cash to pay your general tax pledges each year. That works well when most people are working taxpayers. It works less well in the aging societies of the West, where the ratio of taxpayers to pensions falls every year. In the UK, the automatic enrollment system means that a large part of your pension is not part of the hope system. It was paid by the state in advance. It is fully funded and in your name.

Also Read :  United Hunter Oil & Gas Corp. Announces Mailing of Circular and Updates Regarding Securityholder Meeting and Transaction With Bocana Resources Ltd.

Look at the OECD numbers on this. In addition to the aforementioned figures on basic state pensions, the OECD also analyzes the level of pension assets in each country and those assets as a percentage of GDP. In the UK, that number is 117%. In Italy it is 9.7%, in France 11.1%, in Germany 7.8%, in Greece 1% (yes, really), in Portugal 11.4% and in Ireland 34% . In Australia, which started automatic enrollment before the UK, it is 146%. Seven OECD countries are responsible for more than 90% of their pension assets in absolute terms; the UK is second on that list after the US.

It’s also worth noting that the UK numbers will increase. Self-enrolment only started in 2013, so there are still generations with little or no private pension. As it feeds through the system, our average replacement rate and our level of GDP savings will continue to increase.

So here’s the key question: Would you rather have a taxpayer-funded state pension, at a time when public finances everywhere are a mess and the number of taxpayers per pensioner is falling like a rock? a semi-private system like the UK, where the state sends you cash each year to put into your own dedicated pension account that you can control immediately and spend at 55?

Also Read :  Best Life at Large - Blu-E-Commerce LLC Top 3 Teas in the Market Report Released

If you choose the latter, would you still choose the tangible pile of cash over the theoretical pile even if the papers tell you the former is smaller? I think you would. all the time However, to achieve all this, you have to be inside, not outside. You have to work. And you have to stay on, which most people do most of the time (this is an inertia-based system, after all).

But recently there has been an increase in the number of people opting out (1) thanks to the cost of living crisis. This is not good. First of all, everything that the State and its employer get into is lost. like that Second, you lose what you would grow. Third, you can lose everything for a long time. It will be difficult to opt in again and give up part of your monthly salary again. You don’t take the risk. If you do, you could end up outside one of the best pension systems in the world.

More from Bloomberg Opinion:

• Why Mark Zuckerberg Should Face the Threat of Jail Time: Parmy Olson

• Head to Tokyo or Seoul to meet the latest Gucci and Louis Vuitton: Andrea Felsted and Anjani Trivedi

• Henry VIII powers won’t solve UK strikes: Therese Raphael

(1) According to the Department for Work and Pensions, the opt-out rate for new employees in August 2022 was 10.4%, up from 7.6% in January 2020.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Merryn Somerset Webb is a senior columnist for Bloomberg Opinion covering personal finance and investing. Previously, she was editor-in-chief of MoneyWeek and contributing editor of the Financial Times.

More stories like this one are available at


Leave a Reply

Your email address will not be published.