The government has published the revised level of state pensions and other benefits for 2020/21. But Britain remains last in the state pension league table.
In April 2020, the new state pension will increase by 3.9% to £175.20 a week – £9,110 a year. The old state pension, which is payable to anyone who reached state pension age before 6 April 2016, also increases by 3.9% to £134.25 a week. Other state pension benefits, such as additional state pension, will rise by 1.7%, in line with Consumer Price Index (CPI) inflation to last September. The higher increase for the two main pension benefits is the result of the ‘triple lock’, which means that both increase in 2020/21 in line with earnings rather than prices or a 2.5% floor.
At £9,110 a year, the new state pension is nearly £3,400 below the personal allowance and even below the newly increased level at which individuals start to pay national insurance contributions. The latest global annual survey by the Organisation for Economic Development (OECD), published in November 2019, showed that in terms of mandatory pensions for those on average earnings, the UK was at the bottom of the pile. The OECD average for state pensions is 49.0% for men and 48.2% for women of average earnings. The figure for the UK state pension represented only 21.7% of average earnings. At the top of the OECD league, Austria, Italy and Luxembourg all offer pensions that exceed 75% of average earnings.
The UK has regularly appeared at or very near the bottom of the OECD pension league table, often swapping the wooden spoon ranking with Mexico. It seems unlikely that this situation is going to change any time soon. The last major change to UK state pensions took effect four years ago, when the single tier new state pension replaced the combination of the basic state pensions and, for employees, state second pension scheme (formerly the State Earnings Related Pension Scheme). The underlying aims of the reform were to raise retirement income for low earners while simultaneously reducing the long-term cost to the Treasury.
The October 2012 introduction of pension automatic enrolment added a second tier of private pension provision, but minimum contributions are at modest levels and the self-employed are not included. If you want to enjoy your retirement, the message from the latest state pension increases is to make sure your plans are not relying on state provision.
To discuss your retirement planning in ore detail with one of our Chartered Financial Planners please contact us on 01142 664 432 or info@smhca.co.uk
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