A look at how UK pensions compare with those in other countries. The note compares the UK state pension with similar systems in Europe and goes on to look more broadly at the structural differences in the sources of pensioner income across economically advanced countries.Jump to full report >>
This note looks at how UK pensions compare with those in other countries. It includes a comparison of the UK state pension with similar systems in Europe and goes on to look more broadly at the structural differences in the sources of pensioner income across economically advanced countries.
The task of comparing pension provision in the UK with that of other countries is complicated by substantial differences in the structure of pension systems across the developed world. Countries differ not just in the reliance placed on state pension provision as a component of overall pensioner income but also in the structure, eligibility criteria and financing basis of the state pension system.
A comparison of state pension alone shows the UK providing a lower level of pension than most other advanced economies relative to average earnings, however, the relative position of pensioners converges if income from all sources is considered. According to an OECD analysis published in 2017, the UK has an overall net replacement rate of 29.0% from mandatory pensions for an average earner (well below the OECD average of 62.9% and the EU average of 70.6%). When voluntary provision (mainly workplace pensions) is included as well, the UK’s net replacement rate rises to 62.2%, while the OECD and EU averages rise to 69.1% and 73.8% respectively.
The UK devotes a smaller percentage of its GDP to state pensions and pensioner benefits than most other advanced economies. Income from occupational and personal pensions is a relatively important source of pensioner income in the UK, in contrast to many other countries where state provision (financed either through social insurance contributions or general taxation) is dominant.