UK state pension is least generous in the G7 – how do other rich countries compare?

The UK ranks lowest among wealthy G7 countries across three key measures of state pension generosity, according to new analysis.

UK retirees receive just over a fifth (22%) of average earnings from the state pension – the lowest in the G7 group of the world’s most advanced economies, and much lower than continental neighbour France (with 58%), and Italy (76%).

Other major economies also provide significantly higher levels of pension income support – and for longer – the research by investment platform Fidelity International found.

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In France and Italy more than 70% of retirees’ income comes from public pensions, but in the UK this figure falls to just 40%, placing far greater emphasis on private saving to ensure a comfortable retirement.

The analysis showed a clear trade-off: the UK’s relatively lighter tax burden on the one hand versus higher social security contributions in countries such as France and Italy, where state pensions are more generous.

Marianna Hunt, personal finance specialist at Fidelity International, said: “These gaps reflect very different approaches to retirement provision. In the UK, the state pension acts as a foundation or top-up, while in France and Italy it represents the mainstay of retirement income.

“That means, in the UK, it is critical for individuals to save into private and workplace pensions to secure their financial future.”

We look at ways to boost your pension in a separate article.

How do G7 countries compare on pensions?

Pension systems vary widely in structure and type across countries, making comparisons notoriously difficult. To provide a consistent benchmark, the analysis focused on comparing three measures:

1. The level of state pension received relative to average earnings, assuming a full career from age 22. Both pension and salary figures are calculated before tax. This is the ‘gross replacement ratio’ for an average worker.
2. Expected number of years to receive the state pension – based on the state pension age (for someone born in 1960) and average female life expectancy at age 65.
3. Government spending on old-age pensions as a percentage of GDP – an indicator of the weight each country places on state provision.

The findings show significant disparities across the world’s richest nations when judged by these three state pension metrics and how much state pension UK retirees will get.

Source: Fidelity. For those born in 1960, the UK state pension age ranges from 66 to 66 years and nine months, Fidelity used the mid-year average (66.3 years).

How long will you receive the state pension?

It's not just the level of state pension received to relative to average earnings that's unequal across the G7. How long retirees can expect to receive the state pension is another metric in which the UK lags.

In France, it’s almost 27 years, compared with just under 19 years in the US. Longer life expectancy in Japan means more than 24 years of payments, while the UK sits towards the lower end of the pack at 20 years.

On healthy life expectancy – the time spent in good health after retirement – here too, France and Japan lead the pack; retirees in these countries can expect around 16 healthy years in receipt of the state pension.

Meanwhile, in the UK, Germany and Italy, retirees should expect fewer than 12 healthy years of state pension and, in the US, fewer than nine.

Source Fidelity: Data on healthy life expectancy from the World Health Organisation: Healthy life expectancy (HALE) at age 60 (years)

Hunt said: “Our research shows it’s not just how long people live in retirement that matters, but how many of those years are spent in good health. Those years are when people are most likely to travel, pursue hobbies and enjoy the lifestyle they’ve worked for.

“For UK savers, it underlines the importance of building strong private and workplace pensions to make the most of those vital years or even retire earlier than state pension age, if possible, to enjoy as many healthy years as possible.”

How does the UK state pension compare overall?

Looking across three measures – replacement rate, years receiving the state pension, and government spending – the UK ranks lowest among the G7. France performs best overall, followed closely by Italy.

Hunt said: “It’s important to be cautious when drawing direct parallels – every system has its own rules and funding mechanisms. In the UK, for example, today’s state pension is largely funded through National Insurance contributions, whereas in Italy employees contribute around nine to 11% of their salary towards social security, which also covers pensions and other benefits.”

The fact the UK spends less on state pensions as a percentage of GDP compared to other countries could be seen as a positive in some ways, she said.

This is because, for UK workers, the state pension is less of a tax burden than it might be in other countries – although the cost of state pensions in the UK is rising because of the generous ‘triple lock’ guarantee.

“The key thing for the UK is that people need to be very aware the onus is on them to make up the shortfall. The good news is that, by acting early, with even small increases to contributions, people can put themselves in a much stronger position to enjoy the retirement they want.”

How to boost your pension

The state pension makes up the bedrock of many UK retirees’ pensions. But by providing a much lower level of income than other comparable countries, there is more onus on Brits to save into a workplace pension or self-invested personal pension (Sipp) to ensure a decent standard of living in retirement.

Small changes can have a significant impact on a final retirement pot. Based on a retirement age of 68, for a 45-year-old earning the UK’s average full-time salary of £37,430, raising contributions by just 1% could add more than £22,000 to their retirement pot, according to Fidelity’s online ‘Power of Small Amounts’ calculator.

Larger increases bring even greater benefits. For younger savers, the effect is even more powerful thanks to compounding over a longer time horizon.

Calculated using Fidelity International’s Power of Small amounts calculator.

Hunt said: “Our research shows that the UK’s state pension provides a much lower level of income compared with many other G7 nations, which means the responsibility for funding retirement falls more heavily on individuals.

“This is where private and workplace pensions play such a critical role. The good news is that small, consistent changes can make a big difference. For UK savers, taking steps now to build stronger pension savings is the best way to make the most of their healthiest years and secure the retirement they want.”