State pension 'worst in Europe'

The report highlights the challenge posed by an ageing population

The UK's state pension system has been named as the worst in the European Union for the second year running in a survey by Aon Consulting.

British pensioners receive a pension equivalent to just 17% of average earnings, the lowest level in Europe, and well below the average of 57%.

Aon says the "inadequacy" of the UK's state system is "beyond question".

The government says reform is already underway to make the state pension simpler, fairer and more generous.

Affordability

Aon's third European Pensions Barometer compares retirement provision across 25 European countries.

The countries with the worst problems tend to be those where the retirement age is low Donald Duval, chief actuary, Aon Consulting

It ranks each in terms of population age, the adequacy of its state pension, affordability and private pension provision.

Aon said only the lowest earners in the UK achieved an income in retirement which approached the level provided by other countries. This is because they qualify for extra means-tested help from the government.

However, when all the criteria were taken into account, the UK was placed fifth in a list topped by Denmark.

Although the UK scored badly on the generosity of its state pension, it performed better in terms of sustainability and the strength of its private pension sector.

Aon says plans to increase the state pension age from 65 to 68 between 2024 and 2046 will help the UK's system remain affordable.

"In Europe, the countries with the worst problems tend to be those where the average retirement age is low," said Aon chief actuary Donald Duval.

"They face major demographic and social security issues which, if not addressed, will create unsustainable pension systems," he added.

He also believes the introduction of the government's new low-cost "personal accounts" in 2012 will boost private pension take up, and help compensate for the general reduction in company pension provision.

State pension reform

We are reforming the system to make State Pension simpler, fairer for women and carers, and more generous Mike O'Brien, Minister for Pensions Reform

The government said it was "misleading" to view the state pension in isolation.

"In recent years several European countries have had to make their state provision less generous to ensure long-term affordability," said the Minister for Pensions Reform Mike O'Brien.

"We are reforming the system to make State Pension simpler, fairer for women and carers, and more generous - whilst remaining affordable.

"The Pensions Bill will make it easier for millions of people to save to meet their retirement aspirations through automatic enrolment into a qualifying workplace scheme or personal accounts," he added

Separately, a report from the Pensions Policy Institute (PPI) said means-tested benefits were discouraging people from saving for their retirement.

The PPI called on the government to disregard the first £12 a week people receive from private pensions when calculating their entitlement to mean-tested help.