How the UK State Pension Compares: Generous Triple Lock, Thinner Retirement Income, and a Gender Gap

The triple lock sets the state pension to rise each year by whichever is greatest: 2.5%, earnings growth, or inflation. Since it was introduced in 2011, pensions have climbed much faster than the earnings of people in work. Yet the question hanging over British retirement is whether that generosity is real, and how it looks next to what pensioners get in other wealthy countries.

The domestic picture is mixed. Housing costs have also been rising fast, and pensioner poverty has increased slightly over the last decade. Even so, once those costs are counted, pensioners are less likely to be in relative poverty than families with children or working-age people. Relative poverty here means getting by on less than 60% of the income of the typical household.

The cost of the triple lock has already run billions above what was first envisaged, and it is set to grow. Spending on the state pension is on course to top £150bn a year, making it the single most expensive benefit the state pays for. Andy Burnham intends to begin a new system in a few years. Under it, the state pension would rise by at least inflation or 2.5%, with the automatic annual link to average earnings removed. That will likely mean less generous increases, though pensions would still keep pace with earnings growth over the longer term.

To compare Britain with other countries, the OECD uses the replacement rate: how generous a typical pension is relative to workers' average earnings. Its model follows people born at the start of the millennium on average wages, assuming the pension system as it stood in 2022. On the basic state pension alone, UK benefits look low against other wealthy countries. Add the workplace schemes that British employers must automatically enrol staff in, and after tax UK retirement benefits come to 54.2% of average UK earnings. The average across wealthy countries is 63.2%.

Other occupational and personal pensions, which are more common in the UK, narrow that gap when counted. But the corollary is plain: people relying on the state pension alone are a fair bit worse off than many retired people elsewhere.

Does that argue for spending more on public pensions? Other OECD figures show the UK spends less on total retirement benefits, relative to the size of its economy, than the average wealthy country. Two caveats apply. This is a matter of political choice, and the UK puts larger sums into things like universal healthcare. And with populations ageing, the OECD reckons pension costs may soar in many nations by 2060, except largely in those introducing changes. Its projected rise for the UK is likely to be smaller under Burnham's revised triple lock, though it could still mean more borrowing. Already £1 in every £13 the government spends goes to interest on existing debt, and countries with more generous pensions, such as Italy, have faced pressure to reform.

In some respects, then, auto-enrolment puts the UK ahead in requiring privately funded pensions for workers. But that system exposes the gender pension gap: the difference between men's and women's average pension income at 65 and over, as a percentage of men's. In most wealthy countries the typical gap is around 22.8% in men's favour. In the UK, women typically receive a pension a third lower than men's, mainly because of the reliance on private pensions. The most recent OECD data for the UK is from 2021. Women are more likely to have earned less over their working lives, taken career breaks or worked part time, and the effect on their pension pots can be stark.

The takeaway offered is practical rather than angry: the state pension has become more generous, but anyone wanting a retirement like those elsewhere needs to save, if they can, and if they have not left it too late. What to watch is the planned replacement for the triple lock and whether it eases the pressure on borrowing.