Here’s something I’m pretty sure you don’t know: the UK has one of the best pension systems in the world. You don’t know this because it’s almost never reported.

When you see headlines about UK pensions, they tend to focus on the level of the UK state pension relative to state pensions elsewhere. Read those stories, and you’ll learn that the OECD’s annual pension report puts ours at the bottom of the pile when measured in terms of its net replacement rate – the percentage of average earned income it provides. We pay around 29%. The OECD average is 59%.

In the UK, that 29% is just the beginning of UK generosity. Much more support is offered for those without private means. The minimum annual income for a penniless retiree is around £18,000 ($22,349), for example (see to run the numbers), and that’s before we start adding up care benefits 100% taxpayer-funded medical (although perhaps this month, the less said about the NHS, the better). Add them up, and the state’s average UK net replacement rate comes to over 40%.

However, to see the true joys of retirement income in the UK, we must turn to state-funded private pensions. Consider the latest figures on how much HMRC pays out in pension tax relief: last year the number topped £50bn for the first time. That’s around £15 billion in the last five years alone. Why? The UK has a long history of state-incentivized pension savings outside of the very generous defined benefit pensions offered to public sector employees. The Finance Act of 1921 allowed employers to offset pension contributions against their taxes and gave employees tax relief on all contributions at their marginal rate of income tax, while allowing all assets within pension accounts grow tax-free.

That basic system remains in place, but since 2013, it has been greatly improved with the introduction of automatic registration, something very few countries have. If you have a job, earn more than £10,000 and are over the age of 22, a minimum of 8% of your income will be diverted into a pension for you, with all the aforementioned tax benefits automatic. If the average person on the average salary works for more than 30 years and their pension fund sees 5% annual growth, on average, they’ll end up with a minimum of around £250,000 when they retire. That won’t put you in the lap of luxury, but add it to your state pension and you’ll have an income of around £23,000, more like 70% of the average UK wage than 28%. (The UK government puts the current average net replacement rate at 58%).

You could still argue that this is bad compared to some of the EU offers, given that you have to make some pension contributions out of your own pocket and not someone else’s. But there are a few other things to keep in mind. The first is time. You have to work for 35 years to get full state pension in the UK. In France, it’s 42 years (and going up, if President Emmanuel Macron reaches 43). In Ireland it’s 48. In the Netherlands, it’s 50. Note that you can also take your private pension (which most Europeans don’t have) at 55. Most state pensions in most countries they can only be taken once you are well. in your 60 years.

The second is security. Most state pensions are paid as they go, which means that the government does not have an established pension fund. He just hopes he will have the cash to pay his pledges from his general tax levy each year. That works well when most people are working taxpayers. It works less well in the aging societies of the West, where the ratio of taxpayers to pensions falls every year. In the UK, the automatic enrollment system means that a large part of your pension is not part of the hope system. The state has paid you in advance. It is fully funded and in your name.

Look at the OECD numbers on this. In addition to the much-cited figures on basic state pensions, the OECD also looks at the level of pension assets in each country and those assets as a percentage of GDP. In the UK, that number is 117%. In Italy it is 9.7%, in France 11.1%, in Germany 7.8%, in Greece 1% (yes, really), in Portugal 11.4% and in Ireland 34%. . In Australia, which started automatic enrollment before the UK, it is 146%. Seven OECD countries are responsible for more than 90% of their pension assets in absolute terms – the UK is second on that list after the US.

It is also worth noting that the UK figures will rise. Automatic enrollment only started in 2013, so there are still generations with little or no private pension provision. As it is fed through the system, our average replacement rate and our level of savings to GDP will continue to increase.

So here’s the key question: Would you rather have a state pay-as-you-go pension funded by taxpayers, at a time when public finances everywhere are in shambles and the number of contributors per pensioner is falling like a stone, or a semi-private system like the one in the UK, where the state gives you cash every year to put into your own dedicated pension account that you can control immediately and spend at 55?

If you choose the latter, would you still choose the tangible pile of cash over the theoretical pile of cash even if the newspapers tell you that the former is lower? I think you would. Every time. However, to get all this, you must be inside, not outside. You have to work. And it has to stay activated, which is something most people do most of the time (this is an inertia-based system, after all).

But there has been a recent spike in the number of people who are opting out(1) thanks to the cost of living crisis. This is not OK. First, you lose everything the state and your employer throw out. Simple as that. Second, you lose what you would grow. Thirdly, you can lose everything for a long time. Re-opting and giving up part of your monthly salary will again be difficult. Don’t risk it. If you do, you could end up out of one of the best pension systems in the world.

More from Bloomberg’s opinion:

• Why Mark Zuckerberg should face the threat of jail: Parmy Olson

• Head to Tokyo or Seoul to see the latest from Gucci and Louis Vuitton: Andrea Felsted and Anjani Trivedi

• Henry VIII’s powers won’t settle UK strikes: Therese Raphael

(1) According to the Department for Work and Pensions, the exclusion rate for new employees in August 2022 was 10.4%, up from 7.6% in January 2020.

This column does not necessarily reflect the opinion of the editorial board or of Bloomberg LP and its owners.

Merryn Somerset Webb is a senior columnist for Bloomberg Opinion, covering personal finance and investing. Previously, she was the editor-in-chief of MoneyWeek and a contributing editor for the Financial Times.

More stories like this are available at