Analysis | Give the UK credit for one of the best pensions in the world


Here’s what I’m sure you don’t know: The UK has one of the best pension systems in the world. You don’t know this because it is rarely reported.

When you look at headlines about UK pensions, they focus on how the UK state pension compares to state pensions elsewhere. Read those articles, and you’ll see that the OECD’s annual pensions report puts our report at the bottom of the pile in terms of its replacement rate – the percentage the average labor income is earned. We pay about 29%. The OECD average is 59%.

In the UK, that 29% is just the beginning of Britain’s majority. More support is offered for those without special means. The minimum annual income for a pension without a penny is around £18,000 ($22,349), for example (see for figures), and that’s before the benefits of 100% taxpayer-funded health care start rolling in (although maybe this month, at least the story about in the NHS, the better). Add them in, and the average change of the website in the UK from the state reaches more than 40%.

However, to see the true joy of retirement income in the UK, we must turn to private pensions supported by the state. Consider the latest statistics on the amount of HMRC payments to pension tax relief: Last year, the number exceeded £ 50 billion for the first time. That’s about £15 billion in the last five years. How come? The UK has a long history of active pension provision outside of defined benefit pensions offered to public sector workers. The Finance Act of 1921 allowed employers to set pension contributions against their taxes and gave employees tax relief on all contributions at their rate of income tax, but allowing all assets in pension accounts to grow tax-free.

That policy remains the same, but since 2013, it has been improved by introducing auto-enrollment, something few other countries have. If you are working, earn more than £10,000 and are over 22, at least 8% of your earnings will go towards a pension for you – and all the above tax benefits automatically. If the average person on average wages works for 30 years and their pension pension is said to grow by 5% per year, on average, they will end up with less than £250,000 if retire. It won’t leave you in the lurch of luxury, but add it to your state pension and you’ll have an income of around £23,000 – more than 70% of the average salary in the UK instead of 28%. (The UK government puts the current average at 58%.)

You could argue that this is strange compared to some of the European Union’s offers, since you have to make contributions to the pension out of your own pocket rather than someone else’s. But there are also other things to think about. The first time. You must have worked for 35 years to receive the full state pension in the UK. In France, it is 42 years (and will rise, when President Emmanuel Macron turns 43). In Ireland it’s 48. In the Netherlands, it’s 50. Remember you can also take your private pension (most Europeans don’t have it) at 55. Most state pensions in many countries are can only be taken when you are strong. in your 60s.

The second is security. Most state pensions are pay-as-you-go, meaning there is no government savings. He only hopes to get the cash to pay for his promises from his annual general tax. It works well when many people are employed by taxpayers. It does not work well in older Western societies, where the ratio of income-tax payments to pensions falls every year. In the UK, the auto-enrolment system means that a large part of your pension is not part of the scheme. The state has already paid in advance. It is fully financed and in your name.

See the OECD numbers here. As well as the figures on state pensions, the OECD also looks at the level of pension assets in individual countries and in those assets as a percentage of GDP. In the UK, that number is 117%. In Italy it is 9.7%, in France 11.1%, in Germany 7.8%, in Greece 1% (yes, really), in Portugal 11.4% and in Ireland 34%. In Australia, which started with auto-enrolment before the UK, it was 146%. Seven countries in the OECD are responsible for more than 90% of its pension assets in absolute terms – the UK is second on that list after the US.

It is also important to note that the number of British will increase. Recruitment only started in 2013, so there are still generations with little or no private pension. While feeding into the system, the rate of change and the level of savings in GDP will continue to rise.

So here’s the key question: Would you want to have a taxpayer-funded pension from the state, at a time when public finances are in turmoil everywhere? things and the number of taxpayers per pensioner has dropped like a rock. a similar system in the UK – where the state gives you money every year to put into your own joint account can because you manage quickly and spend at 55?

If you choose the latter, would you still choose the cash pile over the cash pile even if the newspapers tell you that the former is inferior? I think you do. Full time. However, to get all this, you have to be inside – not outside. You have to work. And you have to stay in, something that most people do most of the time (it’s an inertial policy, after all).

But there has been a recent increase in the number of people choosing to move abroad(1) thanks to the cost of living crisis. This is not good. First, you will lose everything that the state and your employer put you through. Second, you lose what you grow. Third, you may lose it all for a long time. Opting back in — and giving back a portion of your monthly salary — will feel difficult. Don’t take the risk. If you do, you may end up outside one of the best pensions in the world.

Added from Bloomberg Opinion:

• Why Mark Zuckerberg Should Face the Threat of Jail Time: Parmy Olson

• Go to Tokyo or Seoul for the New Gucci and Louis Vuitton: Andrea Felsted and Anjani Trivedi

• Henry VIII’s Power Will Not Resolve British Conflict: Therese Raphael

(1) According to the Department of Work and Pensions, the opt-in rate for new employees in August 2022 was 10.4% – up from 7.6% in January 2020.

This column does not reflect the opinion of the board of directors or Bloomberg LP or its members.

Merryn Somerset Webb is a senior reporter for Bloomberg Opinion covering personal finance and investments. Previously, he was editor-in-chief of MoneyWeek and an assistant editor at the Financial Times.

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