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Sunday 04th of July 2010
November 14, 2007    

UK state pension system named worst in the EU

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by Kay Murchie

A report by consultancy firm, Aon, has revealed that the UK has been named the worst state pension in the European Union for the second consecutive year.

The report shows that the state pays pensioners in the UK an income equivalent to just 17% of average earnings. This is the lowest level in Europe and well below the average for all European Union countries of 57%.

The UK also has one of the highest retirement ages in Europe at an average of 62.2 years, with 57% of people aged between 55 and 65 still working. Aon says the ‘inadequacy’ of the UK’s state pension system is ‘beyond question’.

The Government says reform is already in progress to make the state pension simpler, fairer and more generous.

The main problem is the damage caused by the Conservative party in 1980 when, led by Margaret Thatcher, cut the link between average earnings and pensions. Since that time, annual pension increases have been tied to retail price inflation.

Generally, average earnings increase faster than retail prices so pensions have been lagging behind ever since. The Labour Government has pledged to re-establish the link but only if it can afford to.

Aon said, until then it is only the lowest earners, where the Government has specifically targeted benefits, who can receive a state pension that is anywhere near the level provided by other countries.

Aon added that there has been a steady shift in the UK pension system away from the state and towards employers and individuals making their own provisions. However, it warns while this shift has previously been sustainable because the slack had been taken up by the private sector, this is no longer the case.

There have been many amendments to the legislation relating to pensions causing anger, furthermore confidence has been dented in terms of the pensions system among employers and individuals.

However, Aon states that the position will be improved by the launch of the Government’s low-cost Personal Accounts in 2012, whereby people who are able to join an occupational pension scheme will be automatically opted in.

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