How does the UK state pension compare with other countries?

How does the UK state pension stack up against those in other countries?

Growing old is not something most people like to dwell on. But how later life is paid for, and how much people receive, has become a major issue.

The triple lock system - under which state pensions rise by whichever is highest of 2.5%, earnings growth, or inflation - has meant those payments have increased much faster than workers’ pay since it was introduced in 2011.

Yet with housing costs also climbing sharply, pensioner poverty has in fact edged up a little over the past decade.

Even so, once those costs are taken into account, pensioners are still less likely to be in relative poverty - meaning living on less than 60% of the income of the typical household - than families with children or people of working age.

And the triple lock has already cost the state billions more than was originally expected. With that bill set to rise further, the argument over whether it is sustainable, or fair, has been going on for some time.

Andy Burnham plans to introduce a new system in a few years, under which the state pension would rise by at least inflation or 2.5%, and the automatic yearly link to average earnings would be removed. That would probably mean smaller increases, although it would still keep pace with earnings growth over the longer term.

But are pensioners being short-changed in other respects? How do we compare with other countries?

One way to judge this is by looking at how generous the average pension is compared with workers’ average earnings - the replacement rate.

The OECD looks at the prospects for people born at the start of the millennium in different countries on average wages, assuming the pension system as it stood in 2022 remains in place.

On that basis, if you look at the basic state pension, retirement benefits in the UK appear low compared with those in other wealthy countries.

That is true even when you take into account that our system requires workers to be automatically enrolled in occupational schemes.

If both are included, then after tax, UK retirement benefits would amount to 54.2% of average UK earnings, compared with an average of 63.2% across wealthy countries.

But there is also income from other occupational and personal pensions, which are more common in the UK. Add those in and the gap becomes smaller.

However, that also means people relying only on the state pension for their income are quite a bit worse off than many retired people elsewhere.

So does that strengthen the case for increasing public pension spending in the UK?

Well, spending on the state pension is expected to exceed £150bn a year, making it the single most expensive benefit to fund.

But other OECD figures show that, relative to the size of its economy, the UK state spends less on total retirement benefits than the average wealthy country.

There are, however, two things to bear in mind.

First, this comes down to political choices, and the UK opts to spend larger sums on things like universal healthcare.

Second, with populations ageing, the OECD believes the amount needed for pensions could soar in many countries by 2060, with the exceptions mainly being those making changes.

Its forecasts for the UK are likely to rise by less under the revised triple lock system being introduced by Andy Burnham, but it could still mean more borrowing.

At present, £1 in every £13 the UK government spends goes on paying interest on existing debt. And countries with more generous pensions, such as Italy, have come under pressure to reform.

So in many respects, with auto-enrolment into workplace pensions, the UK seems ahead of the curve in insisting on universal privately funded pensions for workers. But that system brings another problem: the gender pension gap.

The gender pension gap is the difference between the average pension income of men and women aged 65 and over, expressed as a percentage of men’s average pension income.

It found that the typical gap in most wealthy countries is about 22.8% in men’s favour.

But in the UK, women typically receive a pension that is a third lower than a man’s - largely because of reliance on private pensions - although it should be noted that the OECD’s most recent UK data is from 2021.

Women are more likely to have been paid less over their working lives, to have taken career breaks, or to have worked part time. And the effect on pension savings can be severe.

So if you step back and look at the wider picture, British pensioners - and those yet to retire - may feel that others have it better elsewhere.

But the point of all this is not to dwell on anger, but to act.

The state pension has become more generous over the years, but if you want to enjoy the same sort of retirement as people elsewhere, save.

That is - if you can, and if it is not already too late.