Opinion

UK's state pension is one of the lowest in Europe. It's the main reason for misery among retirees

As politicians gear up for the general election, Lord Prem Sikka writes about why state pension needs to be raised to a decent level to lift retirees out of poverty

state pension/ retirees

Millions of pensioners are currently living in poverty. Image: Unsplash

Welfare of current and future retirees needs to be a major election issue. Despite the triple-lock, 2.2 million UK retirees live in poverty, 2.5 million skip meals and 1.3 million are at risk of undernourishment.

Around 68,000 retirees die in poverty each year. Despite winter fuel payments, last year there were nearly 5,000 excess pensioner deaths from cold. A study covering the period 2012-2019 noted 335,000 excess deaths (48,000 a year) in England, Scotland and Wales due to poverty and austerity. Over two-third were senior citizens.

The main reason for avoidable misery is the low state pension. For pre-April 2016 retirees, the state pension is £169.50 per week or around £9,000 a year. Only 75% receive the full amount. For post-April 2016 retirees, the state pension is  £221.20 a week or £11,500 a year.

Only 51% receive the full amount. The average state pension is £9,000 to £9,500 a year and is the main or the only source of income for majority of retirees. Pensioners may be entitled to mean-tested benefits such as pension credit and housing benefit, if they can negotiate the bureaucratic maze. Nearly 1.4m pensioners receive pension credit, worth £3,900 a year, and last year £2.2bn went unclaimed.

The average wage is £35,200 a year. The headline minimum wage for 37.5 hours a week is around £22,300. Pensioners are expected to live on the state pension which is less than 50% of the minimum wage and barely 26% of the average wage.

Some pensioners may receive work pension, but future is bleak. Defined benefit pension schemes have vanished. Due to real wage cuts people are unable to save for a decent private pension. Some 28% of over-55s have no other pension saved apart from the state pension. Nearly 32% of Britons are unable to save for pension. This will get worse as zero-hours contracts, fire and rehire and never-ending austerity take their toll.



Despite being one of the richest countries, the UK state pension is one of the lowest among industrialised nations. The UK spends around 5.7% of its GDP on the state pension and related benefits, compared to 16% for Italy, 13.9% for France, 13.5% for Finland and 10.4% for Germany. The average for OECD countries is 8.2% and at the very least the UK must aspire to that even if that means higher taxes and national insurance contributions.

Our retirees deserve a dignified life. Any call for a decent pension is mischievously spun by some as old versus young issue. They forget that today’s young people are tomorrow’s retirees. In time, today’s low state pension, unless increased, will inflict misery upon them too. The real issue is nothing to do with age. It is a class issue, connected with low wages and inequitable distribution of income and wealth.

To avert a major humanitarian and economic crisis, governments need to align the state pension with the living wage. A decent state pension keeps retirees nourished, heated and active. It improves physical and mental health, reduces pressure on the NHS, GPs, care services and reduces demand for social security benefits and related administration.

It also stimulates the local economies as pensioners tend to spend locally. Pensioners pay income tax if their total income exceeds tax-free personal allowance. They also pay council tax, VAT and other indirect taxes. So, a large part of any pension rise will return to the state.

Any call for higher state pension leads to a retort of “how will it be paid for”? Well, a country that can bailout banks and energy companies – fund wars in Ukraine, Afghanistan and Iraq, and hand out billion in subsidies to rail, steel, oil, gas, auto and internet companies – can also pay a decent pension by eliminating tax perks of the rich.

For example, by taxing capital gains at the same marginal rates as wages, around £12bn a year in additional revenues can be raised. The same remedy for dividends can raise another £4bn-£5bn. Levying national insurance on recipients on capital gains and dividends, currently exempt, can raise another £8bn-£10bn. Restricting tax relief on private pension contribution to 20% for all will generate £14.5bn surplus a year.

Government needs to attack tax avoidance. Since 2010, HMRC  has failed to collect over £500bn in taxes due to evasion and abuse. Some £570bn of UK citizens’ assets are held in offshore tax havens and HMRC has no idea of the level of tax evasion. So, investment in HMRC can generate billions of pounds. Additional revenues can be raised by wealth taxes and a financial transactions tax.

Big Issue is demanding an end to poverty this general election. Will you sign our open letter to party leaders?

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