British Average Joe get 40 percent less pension than his counterpart

Published on: 18 March 2022

The second-best pension system in the world. That is what we have in the Netherlands, according to the annually published Mercer CFA Institute Global Pension Index, which includes 43 countries. Are other countries doing so badly? Every two weeks, for twenty weeks, we delve into the system of a specific country. For this latest episode, we are traveling under the English Channel, to the land of stiff upper lip, cricket and fish & chips: the United Kingdom.

The last of the best. That’s what you could call the pension system of the United Kingdom (UK). The country occupies 9th place in the Mercer index and this is mainly due to the relatively high scores for adequacy and integrity (see chart). As far as sustainability is concerned, the UK system is a little less impressive.  

213 euros a week
In 2016, the UK made the "state pension" (the British equivalent of our state pension) income- independent. Before that, it consisted of an income-dependent part and an income-independent part. The legal retirement age in the UK is 66, for men and women. Between 2026 and 2028 it will go up to 67. This equal treatment of men and women in this respect has not been in place for very long - before 2010 men had to contribute for 44 years to be entitled to the full state pension, for women it was 39 years. They do not have the option to take this pension earlier than the statutory retirement age. They can do so at a later date, in which case they will receive a bigger pension.

All Brits who started paying contributions from April 6, 2016 on, must now have paid contributions for 35 years to qualify for the full amount - GBP 179.60 per week (converted to 213 euros). On a monthly basis, this amounts to €923. By comparison, our state pension is 1,244 euros for those living alone and 838 euros for those living together or married. Residents below a certain income threshold are eligible for the so-called Pension Credit. This is a tax-free supplement for low-income pensioners. This is the first pillar of the system in the UK.

In addition to this first pillar, the system in the UK, as in the Netherlands, also consists of a sizeable second pillar. This is a supplementary pension, paid for in part by an employer. But unlike in the Netherlands, participation in this type of scheme is voluntary. This has had repercussions on the number of workers in the UK who, in addition to the state pension, also accrue a pension through their employer. Until 2012, this decreased to 40 percent of eligible workers.

In 2012, so-called auto-enrolment was introduced, in which workers automatically participate in their employer’s pension scheme unless they choose to opt out. It led to more than a doubling of the aforementioned 40 percent (88 percent). This means that the UK now comes pretty close to the Netherlands, where 90 percent of employees are accruing supplementary pensions. Whether or not employees can take early retirement depends on the specific plan they participate in.

Average Joe
Compared to the Netherlands, in the UK a much smaller portion of salary is put away for old age. Average Joe, someone who earns the average income, sees a much smaller part (just 54 percent) of that income back in retirement than his Dutch counterpart, who can look forward to some 89 percent for his old age.  

Robert Maxwell and the “Goode Report”

A number of scandals and bankruptcies of large companies led to substantial losses at a number of British pension funds in the 1980s and 1990s. The most high-profile case was that of media tycoon Robert Maxwell, father of Ghislaine Maxwell (former companion of the American multimillionaire and convicted sex offender Jeffrey Epstein and arrested in connection with involvement in that). After his sudden death, he was found to have embezzled nearly half a billion British pounds from the pension fund of the Mirror News Group, the company he owned.

Partly as a result of Maxwell’s fraud, there was social pressure to regulate pension funds more, so that participants would be better protected. The investigation into the wrongdoings, which was ordered by the government, led to the Goode Report in 1993. This resulted in a change in the law, through the Pensions Act 1995.

The British pension system: Facts & figures

Appreciation in the Mercer CFA Institute Global Pension Index 2021: B-Grade (“A system with a solid structure and many good features, but has a number of areas of improvement that keep it from belonging to the A-grade category.”)

Structure:                                                       Two-pillar system

Financing:                                                       Pay-as-you-go (first pillar) and equity funding (second pillar)

Adequacy (Mercer ranking):                    9th        

Sustainability (Mercer ranking:              14th

Integrity (Mercer ranking):                       8th










Net pension







Net replacement ratio







Total net pension equity

at time of retirement








Explanation of chart:

The column under "1" reflects the situation for someone with the average net income. The column under 0.5 reflects the situation for someone with half the average net income, etc.

Net pension: the net pension someone receives as a percentage of net average income. 

Net replacement ratio: the net pension that someone is left with, expressed as a percentage of that individual’s total wages.

Total net pension assets: value of expected benefits as a multiple of net annual income.