The UK state pension: how the 'triple lock' compares with other countries

Comparison with other countries

The UK state pension looks modest against other wealthy countries, BBC News reports, citing OECD data. The organisation compared how a typical pension relates to average workers' earnings (the replacement rate) for people born at the start of the millennium earning an average wage, based on pension systems as of 2022. Taking into account the basic state pension and automatic enrolment of workers into workplace schemes, post-tax payments in the UK amount to 54.2% of average earnings, compared with 63.2% on average across wealthy countries. If income from workplace and personal pension savings is added, the gap narrows, but those who live solely on the state pension end up noticeably poorer than many pensioners in other countries.

The 'triple lock' and its cost

The current 'triple lock' formula — an annual pension increase by the highest of three values: 2.5%, earnings growth or inflation — has been in place since 2011, and during that time, pensions have risen significantly faster than workers' earnings, BBC News notes. Funding this scheme has already cost the state billions more than originally expected, and spending on the state pension, according to the publication, will exceed £150bn a year — making it the most expensive item of social spending. At the same time, according to the OECD, the UK as a whole spends a smaller share of its economy on pension provision than wealthy countries on average: part of the funds goes, for example, to universal healthcare. Despite rising payments, pensioner poverty has even increased slightly over the past decade — partly due to the rapid growth of housing costs — although pensioners are still less likely to live in relative poverty than families with children and people of working age.

Burnham's plans

Andy Burnham intends to launch a new system in a few years: the pension will rise by at least inflation or 2.5%, while the automatic annual link to average earnings will be scrapped, BBC News reports. This likely means less generous increases, although in the long term payments will keep pace with earnings growth. According to an OECD forecast, pension spending in many countries could rise sharply by 2060 due to population ageing; for the UK under the new system the increase is likely to be smaller, but it may still require additional borrowing. Currently, according to the publication, every 13th pound of UK government spending goes towards servicing existing debt.

The gender gap

A separate problem of the British system is the gender pension gap. In most wealthy countries the typical gap is around 22.8% in favour of men, but in the UK women on average receive a pension roughly a third smaller than men's — mainly due to reliance on private pension savings, BBC News writes, citing the OECD (the latest UK data relate to 2021). Women more often earned lower wages, took career breaks or worked part-time, which significantly reduces pension savings.

Context

Editorially: the publication shows that the British model combines a relatively low state pension with mandatory private savings — and it is precisely this combination that explains both the smaller share of public spending on pensions and the large gender gap. The changes to indexation announced by Burnham for 2030 will directly affect future pensioners, whose payments will grow more slowly than under the 'triple lock'. The final parameters of the new system and its impact on the budget have not yet been disclosed in the publications.

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