That Britain has the least generous state pension in the G7 should be recognised for what it is: good news. The fact that it won’t be celebrated tells us a lot about the mismatch between policy and politics around pensions in the UK.
The nature of Britain’s state pension isn’t an accident or a failure. It’s the product of deliberate design. For the past three decades, British policymakers have chosen to provide retirement income largely through private saving rather than tax-funded state benefits. They’ve done so quietly, but rationally. The alternative would be to copy France – a country that still treats the state pension as a social guarantee and which, as a result, is inching closer to fiscal crisis.
Many people will see failure where they should see prudence
France spends around 14 per cent of GDP on public pensions, according to the OECD – one of the highest shares in the developed world. The UK, by contrast, spends roughly 5 per cent of GDP, among the lowest in the G7. That difference is not some heartless act of British parsimony; it’s a sign that Britain has built a more sustainable system that won’t buckle under the weight of its own promises. Yes, we still have unwise giveaways like the triple lock, but in relative terms, our state pension provision is modest and prudent.
The French model looks generous, but it’s fiscally doomed. Rising longevity, early retirement ages and generous indexation are combining to push that bill ever higher. French politicians all know that without further reform the system will fall into deficit within the decade, but they risk electoral doom if they attempt a change that requires the French public to work into their 60s or enjoy affordable pensions. Meanwhile, French public debt is heading towards 110 per cent of GDP – not because Paris spends too much on aircraft carriers, but because it spends too much on pensioners.
Britain’s restraint, by contrast, means that our future fiscal risk is smaller. We have capped the state’s liabilities and transferred the responsibility for building adequate retirement income to individuals and markets. That is the right policy. It’s what prevents Britain from facing the same disaster that awaits France.
But it’s also a policy we’ve never properly explained. Most people still think their state pension is something they’ve paid for themselves – a personal entitlement funded by their own National Insurance. In reality, it’s today’s workers paying today’s pensioners. The money doesn’t sit in a pot with your name on it; it’s a transfer from one generation to the next.
Meanwhile, the biggest shift in post-war social policy – the move from defined-benefit to defined-contribution pensions – has happened almost unnoticed. The risk and responsibility of providing a secure income in old age have moved from employers and institutions to individuals. It’s one of the most profound economic and social transformations of the modern era, and yet few people grasp what it means.
Auto-enrolment, for all its success, has made that ignorance easier to live with. Millions are saving for the first time, which is welcome. But because the process is automatic, it discourages engagement. People see a line on their payslip and assume the job is done. They don’t ask whether they’re saving enough or what kind of retirement that money will actually buy.
And so, when Fidelity International reports that our state pension is the smallest in the G7, many people will see failure where they should see prudence. They assume an austere state, not a sustainable one. That misunderstanding reflects a deeper democratic problem: policymakers have built a rational pension system but never taken the public with them.
The UK pension policy risk now is political, not financial. If voters expect the state to provide something it never promised, the eventual disappointment will breed anger and mistrust. Politicians have ducked the honest conversation: the state pension is meant to be a foundation, not a full income. The rest depends on saving – and saving more than most people currently do.
Bond markets should understand this better too. It is slightly odd that yields on 10-year gilts are around 4.4 per cent but the yield on 10-year French bonds are closer to 3.4 per cent. Yes, France is part of the Euro and can partly rely on German resilience. But France’s fiscal and political outlook is surely worse than the UK’s, thanks to its approach to pensions.
So yes, Britain’s state pension is the least generous in the G7. That’s not a scandal – it’s a sign that we’ve made the right strategic choice. But it’s also a reminder that we’ve failed to tell voters what we’ve done. A sensible policy pursued in silence will eventually become an unpopular one.
We should start being honest: the state will provide a modest floor, but no more. Everything beyond that is up to the individual – to save, invest, and plan. The sooner we level with people, the better the politics of pensions will become. Because the real danger isn’t that Britain’s pension is too small. It’s that the public doesn’t know why that’s a good thing.
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