The French may retire earlier – but British pensions are far better
Here's how Britain's retirement benefits compare to our European neighbours
While British pensioners will receive the biggest pay rise on record this April, critics maintain that our government is the least generous in Europe when it comes to retirement benefits.
The full new state pension will increase by 10.1pc to £10,600 a year in April, thanks to the Government’s triple lock policy. But for many this is not enough to cover the basic costs of retirement – a single pensioner will now need an annual income of at least £12,800, according to research published this week.
Many believe that Britain has the worst state pension in Europe, as it frequently ranks among the lowest for the “pension replacement rate of average salary” metric calculated by the Organisation for Economic Co-operation & Development. But experts suggest that comparing the British pension system with its neighbours is a case of “apple and pears”.
Alistair McQueen of the pensions company Aviva says: “The OECD report puts Britain near the bottom of the pile, but it does not take into account our significant private pension industry or the benefits of the NHS.”
A more rounded approach is taken by the Mercer global pension index, which scores systems, combining private and state pensions, based on measures of adequacy, integrity and sustainability. On this list, the UK ranks slightly higher than the global average of 63, with an overall score of 75.
Iceland comes top at 84, just pipping the Netherlands, while Denmark ranks third at 82. The larger European countries did not fare so well.
Under Germany’s system, the state pension guarantees retirees at least 48pc of the average wage until 2025. The current state pension age is 65, but is in the process of gradually rising to 67.
Hubert Becker of the communications and research specialist Instinctif said: “The benchmark pensioner – a person who has earned the average salary of all insured people, has paid his pension contribution for 45 years and reaches statutory retirement age – receives an average gross pension of about £1,422 a month in western Germany and £1,402 in eastern Germany.”
Rainer Dulger, the head of an influential German union, told the Bild am Sonntag newspaper in October that the system would break down within five years without intervention.
He said: “For every 100 contributors, there are currently about 50 pensioners; in 15 years, there will be 100 contributors for every 70 pensioners. This means that the financing of our pension system is on the verge of collapse.”
Like the German system, the French state pension is based on career earnings. There are two main types of compulsory pension and most do not bother with private savings. The basic state pension pays a maximum of 50pc of average earnings, with a ceiling on contributions.
Payments are based on the number of years worked and how much was paid in contributions financed by social security contributions by employees and employers.
In order to qualify for a full public pension, French workers either must have a minimum contributory record of around 42 years and also be of the minimum legal pension age of 62, or must be at least 67.
However, Emmanuel Macron, the French president, this week laid out plans to increase the minimum state pension age by two years by 2030. Under the new proposals, citizens will have to reach 64 in order to qualify for a full pension, and from 2027 they will need to have worked for 43 years.
Italy has one of the most generous state pension systems in Europe, but its cost is growing rapidly. Italians are entitled to old-age benefits if they have accrued at least 20 years of contributions and meet the minimum age requirement of 67.
There is also an early retirement pension, for which they must have accrued at least 42 years and 10 months of contributions as a man, or 41 years and 10 months for women. Economists have forecast that public expenditure on pensions will rise to 17.3pc of national economic output by 2030.
The Swedish pension system is split into two parts, the income pension and the premium pension. Swedish retirees will receive different payments according to how much they have contributed over their working life, economic performance and investment returns.
“This means that the benefits will vary for each individual,” Stefan Lundbergh of the provider Now Pensions says. Sweden uses a retirement window rather than a defined state pension age, from 63 to 69.
State pensions in Britain are funded nominally by National Insurance contributions. The state pension age is 66, with a scheduled rise to 67 in 2028 and then 68 in the 2040s.
However, the Government is considering plans that would accelerate the move to the mid-2030s. You must have 35 years of a full NI record in order to qualify for the full state pension.
Unlike its European neighbours, Britain has an “auto-enrolment” system, under which workers are automatically signed up into their workplace pension scheme.