In most countries around the globe, the state pension is crucial for retirement because it’s the only income that the majority of pensioners rely on.
In this article, we’ll take a look at UK pensions compared to other countries and what kind of changes the government has introduced to improve the pension system.
Let’s dive in.
The amount of state pension a person in the UK gets once they retire is based on their National Insurance (NI) record.
The current full new State Pension is £179.60 per week.
The number is expected to increase by 3.1% to £185.15, starting April 11, 2022. The Department for Work and Pension confirmed the change at the end of 2021, saying they’re increasing the pension in line with inflation.
To be eligible for the full new State Pension, an individual must have made NI contributions for at least 35 years. To get any pension, UK citizens have to make NI contributions for at least 10 years.
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They may be eligible for less than the full new state pension if they’ve taken early retirement or claimed certain benefits. However, your private pension does not affect your state pension.
According to the 2021 report from the Organisation for Economic Co-operation and Development (OECD), the UK net replacement rate — the ratio of pension income to pre-retirement earnings—is 58.1% for mandatory pensions.
Looking at the numbers, the UK pension compared to Europe is low, based on OECD’s average of 69.1%, but far from the lowest pension in Europe.
Many people in the UK choose to delay their pension and claim it at a later date (after they reach the State Pension age) to enjoy a higher income in retirement.
Uk citizens who reached the State Pension age on or after 6 April 2016 and choose to defer their State Pension can increase it by 1% every 9 weeks.
Those who reached State Pension age before 6 April 2016 have their pensions increased by 1% every 5 weeks. Once they claim it, they have the option to either receive a higher monthly income or take the extra State Pension as a lump sum.
The extra State Pension is taxable for all UK citizens. However, the deferral can still make a difference when comparing the state pension by country.
State pensions in Europe can vary significantly from one country to the next.
In France, state pensions are essentially funded by social security contributions, which are usually made by employers. Retirees must have worked for at least ten years to qualify for a state pension and can retire when they turn 62.
Under the French state pension program, retirees are entitled to a maximum of 50% of their yearly average wages, up to a maximum of €39,732 per year.
According to OECD numbers, state pensioners in France receive 74% of their working wage.
In Germany, the current official retirement age for both men and women is 65 years, but it is expected to climb to 67 by 2029, due to changes introduced by the government.
There are no maximum or minimum state pensions in the country. The amount depends on the worker’s average income, the number of years worked, and their age. The net replacement rate is 51%.
The state pension system in the UK operates on a pay-as-you-go basis. It is funded through social security taxes, which are paid both by employees and employers.
The retirement age in the US depends on the retiree’s year of birth and ranges between 62 and 70.
The amount depends on which state they live in, how long they’ve been part of the workforce, and the level of workplace pension. According to the OECD, the net replacement rate is 51%.
Australia’s state pension system is means-tested.
On average, Australian workers receive around 41% of their salary as the state pension.
However, the maximum amount retirees can receive is AUS $900.80 per fortnight, or AUS $679.00 if you’re in a couple (for a total of $1358). Currently, retirees in Australia can start claiming their state pension at the age of 65 and six months.
The UK pensions compared to other countries and the net replacement rate are below average. However, pensioners in the UK don’t rely on state pensions as much as retirees in other countries. What’s more, there are many benefits and allowances that retirees can claim, which can significantly boost their income in retirement. Finally, the amount of money you need for a comfortable retirement also depends on your lifestyle and personal circumstances.