State pensions around the world

Jaco70

I read a newspaper article about the UK state pension, which suggested it is not very generous. I consider the £ 190 pw that I’ll receive to be a ‘good start’ and 67 to be a reasonable age to claim it.

We’ve all seen the stories of riots in France regarding raising the state pension age from 62, so I googled it to find out how far we lagged behind other countries.

Basically I found it very opaque, and most of the figures not hugely more than ours. Also, if I understood correctly, many countries pensions seem to be linked to assets, unlike the UK. The more net worth you have, the less you can claim.

Just wondered how much more other people understand state pensions anywhere else. 

mummytummy

The Australian system is complex, here’s a link to it 😳 

https://www.servicesaustralia.gov.au/age-pension

xylophone

Try this very recent paper.

https://researchbriefings.files.parliament.uk/documents/SN00290/SN00290.pdf

hoc

No, most in the West are not means tested. The UK pension is low, but it's not an easy topic where numbers can be directly compared. You need to normalise costs, factor payments in, consider typical life expectancy, etc. to compare the value from the different systems. On a pure £ basis many countries pay out far more for less paid in but they may not provide other benefits that pensioners can enjoy for free. For example the American system pays out 2-3 times for half the UK contribution, but don't offer NHS. I would personally rather get £600 pw after paying only 6% instead of 12% national insurance and do without NHS. Developed, large European countries like France are probably the best to compare against, not far away ones like Australia, USA, or the smaller, culturally different Mediterranean or richer Nordics. The UK has one of the highest poverty rates for pensioners in Europe and is in the minority where pensioner poverty is above the national average.

MattMattMattUK

In the UK most people do not pay much tax compared to our international cousins. The bottom two thirds of earners in thr UK pay the lowest effective rate of income taxation in the EU (the top third pay the fifth highest), whilst our headline rate of VAT is roughly comparable we have far more exemptions, particularly food, meaning a lower revenue overall. Many other European nations also have compulsory insurance for both health and retirement which is on top of their already higher taxes.

The UK is a low tax nation, so we get pensions that reflect that, as well as sub standard public services which also reflect the lower taxes we pay compared to most other Western nations. Those in the US pay slightly lower taxes than we do, but they also have to privately fund healthcare and the combined cost of that far exceeds the additional tax we pay, they also have failing infrastructure which makes ours look modern and reliable (bridges collapsing, undrinkable tap water, brownouts etc.).

It is why the UK has such a large private sector pension industry, if one wants to retire with a decent income one needs to top up accordingly, although it is less efficient than the systems used in Germany, The Netherlands or Scandinavia (ex Norway which uses oil and gas revenues for it's pension fund) it is thr only option available to us.

Suhusa

In Germany the state pension is contribution based in that your contributions are weighted against an 'average' wage to give you a number of points and these points are multiplied by another factor to give you a monthly pension payment. There's a cutoff for high earners but other than that there's a linear relationship between what you paid in and what you'll get out, so pensions can range from virtually zero to a bit over €3000 per month (that figure is largely theoretical as you could only reach it by earning €82000 a year for 45 years). If you earned little but have always worked you'll get an additional payment to lift you to something in the order of €1000, but if you've got gaps on your CV because you've been long term unemployed and you were a low-earner when you were in work you'll have to rely on a payment that's similar to universal credit, which is around €500 per month. A bit over €200 of your pension are exempt, so all in all you'll have between €500 to a bit over €700 to live on, so it's no surprise that food banks feed a lot of pensioners. I'm certainly on track on getting more pension than some people I know are earning which I frankly find obscene, as I can easily save for old age (adding my workplace and private pensions plus other long-term savings and the UK state pension that I pay Class 2 contributions for and if all goes well I'll have only a little less than as a pensioner than I have now, with inflation taken into account). As I understand it, the Swiss for example weigh payments by low earners higher than from high earners so you in the end you have a fairly low spread of possible state pension amounts, which is a system I'd prefer.

The thing in Germany is also that there's also great inequality in access to workplace pensions. Most East Germans who are pensioners now have small or no workplace pensions because there were no workplace pensions in the GDR, and if you were, say, 50 during reunification then that left you with very few years to pay into a workplace pension, if you had a job (25% didn't in the East in the 90s) and if your job offered a workplace pension in the first place. In contrast to that Western German pensioners from high-earning fields like the chemical industry have huge workplace pensions. Access to workplace pensions has got better but it's still opt in in many places and afaik it's still not mandatory to offer a workplace pension. As I understand it, tax relief for private pensions is also less generous than in the UK because it's capped at 2100€ of contributions per year for the most common model (which at least does allow you to transfer your pension pot and to take a lump sum - there's another model where the cap is much higher but that doesn't allow you to take any lump sums and you can't even transfer your pension pot).

Also the French pension protests might sound ridiculous at first glance, but those 62 years are when you could first draw a pension, but only if you've got well over 40 years of contributions. Because you need this many years, most people actually only draw their pensions from 67.

MattMattMattUK

I would far rather the Germany system than the low quality pensions we have in the UK, their unemployment benefits system, which for the first year scales with previous average income and contributions also makes far more sense than ours. In the UK compared to Scandinavia, Germany, The Netherlands, Australia, Canada etc. high earners pay in a lot and get comparatively very little back, combined with poor public services, whilst low earners pay in little but comparatively get much much more, less than a third of adults make a net contribution in the UK in any one year, over a lifetime it is less than 5%, 50% of households receive more in direct cash benefits than they pay in tax.

The UK for some reason seems to have gone down the route of relying on an ever shrinking number of high earners to pay more and more of the tax bill, whilst reducing the tax lower earners pay. The rest of the world either recognises that you can spread the burden and have decent public services for all (most of Europe), funded by all, or you have poor public services but pay little tax (USA). I would rather that we took a choice that everyone pays more, but we use that to fund society, decent healthcare, decent pensions, well funded schools and childcare provisions, sensible unemployment and disability benefits, roads that are not filled with potholes etc. however too many people seem to think that "someone else" should pay for everything and they should benefit. I am prepared to pay more tax if everyone does, combine IC and NI into a single income tax, increase the rates charged, abolish the personal allowance, re-cap the lifetime pensions pot (although higher than it was previously capped) and we might have the money to make the country better, or we could carry on with the failed policies of the last fifty years and nothing will improve. 

Flugelhorn

MattMattMattUK said:

I would far rather the Germany system than the low quality pensions we have in the UK, their unemployment benefits system, which for the first year scales with previous average income and contributions also makes far more sense than ours. In the UK compared to Scandinavia, Germany, The Netherlands, Australia, Canada etc. high earners pay in a lot and get comparatively very little back, combined with poor public services, whilst low earners pay in little but comparatively get much much more, less than a third of adults make a net contribution in the UK in any one year, over a lifetime it is less than 5%, 50% of households receive more in direct cash benefits than they pay in tax.

It is interesting - I was surprised how little could be considered to be a "full year" for NI. I quit work about 5 weeks into a financial year and what a paid in that time seems to b enough for the whole year ie I get the same addition to my pension paying 5 weeks worth as I did paying 52 weeks 

GunJack

I think MMMUK has some good points there, I think we as a nation should pay more in tax (and not all biased toward high earners) to pay for the public services that "people" want/need. Looking back to the late 70s/early 80s some rebalancing was required, but Thatcher took it too far the other way. 

We the UK need to find the sensible middle ground between needs, expectations and how to pay for it all.  

Suhusa

One of the crucial differences in social security between the UK and Germany is that in Germany none of that is directly state-run. Going back to the 1880s the principle is that most of the different arms of the social security system have to self organise. Unemployment benefits are provided by a Federal Office or municipal offices, but pensions, wokrplace accident insurance and health insurance are separate public bodies where the state can't just interfere. Obviously the state makes the law and has a say (but not necessarily the last word) in distribution of funding, but the details, the day to day work is decided by those public bodies. (In fact the election for the governing bodies of the pension and health insurance system will come up soon). It's probably most noticeable in the health system where you're free to choose which health insurer you go with. They all have to provide you with the same level of statutory care - so in that way it works similar as if you were using the NHS, the only difference is that you have to hand over a card to show which insurer is gonna get billed by your doctor - but the fine details differ. That could be how good their hotline is (some are awful, others have excellent service), whether you get a small bonus for getting all check-ups, or how easy it is to get a health or fitness class (and whether that's completely free or there's some co-pay). So the state can't micromanage these things in Germany to the same level it can in the UK.

Suhusa

Flugelhorn said:

MattMattMattUK said:

I would far rather the Germany system than the low quality pensions we have in the UK, their unemployment benefits system, which for the first year scales with previous average income and contributions also makes far more sense than ours. In the UK compared to Scandinavia, Germany, The Netherlands, Australia, Canada etc. high earners pay in a lot and get comparatively very little back, combined with poor public services, whilst low earners pay in little but comparatively get much much more, less than a third of adults make a net contribution in the UK in any one year, over a lifetime it is less than 5%, 50% of households receive more in direct cash benefits than they pay in tax.

It is interesting - I was surprised how little could be considered to be a "full year" for NI. I quit work about 5 weeks into a financial year and what a paid in that time seems to b enough for the whole year ie I get the same addition to my pension paying 5 weeks worth as I did paying 52 weeks 

That's an effect of the UK state pension not being linked to the contributions as such but just to the fact that you've made any contributions as long as you're over the minimum amount.