UK/EUROPE - The UK has more pension assets than the rest of its European Union partners put together, a worldwide pensions study shows.
Britain spends – as a share of its economy – only half of what the typical continental European country does on public pensions. But it warns that as the real value of the state pension falls, a two-tier class is emerging.
The study – The global retirement crisis: The threat to world stability and what to do about it – was published by the US-based Center for Strategic and International Studies in conjunction with Citigroup.
The study credits governments over the last 20 years for encouraging a culture of private retirement savings that is not matched in Europe. And it points out that although pension reform began as part of an overall programme of privatisation and deregulation under the Thatcher government, it has been wholeheartedly embraced by Tony Blair’s Labour Party.
But the report’s author, Richard Jackson, warns that while the UK is the only developed country whose public pension system faces no long-term cost challenge, it may suffer from a global crisis caused by the growing pension liabilities of other developed countries.
Jackson says the typical developed country will see public retirement spending rise from 10.9% to 23.4% of GDP by 2050. He says taxes will have to rise in these countries to meet pension liabilities, which will have the knock-on effect of stifling investment.
Jackson believes the biggest weakness in the UK system is that people who rely solely on the state have a lower standard of living than those in the other major economies of Europe.
The problem, he says, has been caused by the decline in the real value of the UK state pension compared to wages over the last 20 years. Consequently, Britain now spends only half of what the typical continental European country does on public pensions.
But Jackson says this means two worlds of pensioners may be emerging. “One where employer pensions are common and real incomes are rising, the other where retirees struggle to get by on public benefits that each year fall further behind.”
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