According to recent statistics, the UK pension is the worst in the developed world, with middle income groups receiving worse pensions than any other country in the OECD. However, the Government’s own actuary says this is still unsustainable
The UK has the lowest state pension in the developed world, yet despite this the British government’s own actuary has stated it does not believe the fund is sustainable. Recent OECD figures place the UK at the bottom of a league table of state pension provisions, giving citizens just 29% of their average earnings, compared to an international average of 62.9%.
The UK Government’s Actuary Department has warned that this level of pension provision will not be maintainable. “Without additional support in addition to NICs [national insurance contributions], the [pension] Fund balance will fall rapidly to exhaustion in around 2032-33. Treasury Grants would be required from around 2030, but would consistently need to exceed the current limits from 2060-61.” To combat this, the Department suggests a significant tax rise, a doubling of NIC and/or a removal of the ‘triple-lock’ guarantee currently in place. This guarantee says pensions must rise by the highest of earnings inflation or price inflation or 2.5%.
Net pension replacement rates for average earners (state pension as a % of earnings):
Country, % of average earnings
Czech Republic 60.0
New Zealand 43.2
OECD average 62.9
Source: OECD ‘Pensions at a Glance’ Table 4.8 December 2017
The UK faces a high risk of old-age poverty said former Pensions Minister Baroness Altmann. “No other country has a less generous state pension than ours for average earners. Even Chile, Poland and Mexico pay better state pensions than the UK for middle income groups.”
“Beyond the 2030s, the new state pension will be lower than the old system for most people and the lowest paid, predominantly women, will generally lose significantly from the new system. Despite this, the Government has been advised, by its own actuaries, that the costs of paying state pensions will soar so much over the next 20 years and beyond that further cuts could be required.”
The current weekly pension payout of £122.30 is estimated to be the least generous in the developed world when taken as a proportion of earnings. In addition to this, current proposals mean everybody aged 30 or below will get no state pension until they are into their 70s.
The pensionable age has risen since the austerity measures of 2010 and is set to move to 66 by 2020, then to 67 and then to 68. The Government Actuary assumes state pension age will be 70 in the 2050s and 71 in the 2060s. Anyone currently 20 or younger will have to wait until they are 71 to receive a state pension.
“We are one of the world’s leading economies but our support for the oldest in society is not fit for purpose,” said Altmann. “Even though most people will receive the lowest state pension in the developed world, the costs of providing for our aging population have not yet been brought under control. To avoid burdening younger generations with significant tax rises, it is vital that more is done to boost private pension saving. Auto-enrolment is a good start but the pensions industry needs to attract more customers to pay more into their pensions.”