Britain is not alone in facing a pensions crisis. By comparison with most other European countries, the UK is doing rather well, according to this year’s Aon Consulting pensions barometer.
The firm ranks the UK in sixth place, using a basket of measures that includes demography, the adequacy of the state pension, affordability and sustainability, and the state of company pensions.
Top of the list is Denmark which, despite having a poor state pension, does well in terms of company pensions and demographics – most notably because it has a high proportion of its population in work.
Some new EU members also score highly. Estonia, ranked second, has the most sustainable pension system in Europe, according to Aon, while Latvia comes fourth. Both score well because they have a high average retirement age and low life expectancy.
With life expectancy around the European average, the UK scored well because of the sustainability of its pension system and a relatively good company pension system. But it is also judged to have the worst state pension scheme in Europe.
The bottom of the table also includes a mix of countries, with France and Belgium sharing the dishonours with Greece and Slovenia.
Belgium’s ignominious 25th place is attributed to an early retirement age and long life expectancy. Just 30% of Belgians aged 55 to 64 are in work. Last year, Belgium finished top of the table, but Aon says that it has failed to move forward as fast as other countries.
Channel hopping could pay off…
While Denmark is the place to go for long-term security in retirement, anyone wanting to spend as long as possible sitting in the sun should head for France. French workers retire before most Europeans and have the highest life expectancy at age 65 – an average of 20.9 years in retirement.
Workers from Malta, Luxembourg, Austria and Slovenia can also expect 20 years in retirement. The average retirement expectancy for UK workers is 16.55 years – rather worse than the EU average of 17.75 years, and marginally below that of Polish workers, whose retirement also typically lasts 16.55 years.
Latvians and Estonians can look forward to just 7.65 and 8.9 years of retirement respectively. Lithuanians (11.25 years), Hungarians (12.15 years) and Slovakians (15.25 years) also do badly.
The report notes that because countries such as Latvia and Estonia have low life expectancy, they find it relatively inexpensive to provide good pensions.
…but new EU states are coming on strong
Long-established EU members such as France, Germany and the UK (the EU15) spend on average a larger proportion of their GDP on pensions and, crucially, have a larger proportion of adults in work, the report shows.
By comparison, newer EU countries such as Lithuania, Slovakia and Estonia spend less, and their citizens tend to exit the workforce at an earlier age.
According to Aon, the influx of new member states and the increase in cross-border migration will add to the challenges of providing adequate retirement income for all. It says reform needs to focus on lifting state retirement ages and increasing private pension provision.