UK pensions are the measliest in Europe

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£84 a week is not much in today's world

The state pension is worse in Britain than in any other European country, according to a report yesterday.

Countries such as Slovenia, Estonia, Latvia and Slovakia were all said to give their pensioners a better deal.

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The charity Help the Aged said one in five pensioners is living in poverty in the UK due to the inadequate state pension, currently £84.25 a week.

A spokesman said it had "utterly failed to keep pace with the cost of living to support pensioners".

The most recent annual increase in the state pension was only £2.20 a week, which does not keep up with inflation-busting rises in household bills.

He said it was time for the Government to address the "shocking levels of pensioner poverty" by bringing forward the introduction of the link between pensions and earnings, which is scheduled for 2012.

"Our pensioner population should be entitled to retire with dignity and without the need to apply for means-tested benefits," the spokesman added.

The research, European Pensions Barometer, which was published by pension consultants Aon, compared the "adequacy" of state pension in all 25 members of the European Union in 2006.

It ranks "adequacy" by comparing the size of the basic state pension to the country's average salary. Luxembourg came top.

For total pension provision, including both state and private pensions, Britain was ranked sixth.

Aon fears, however, that the UK will slip down the ladder as company pensions become increasingly miserly.

An Aon spokesman said: "We used to have the best company pension provision in Europe, but we are seeing that dwindling.

"We are going to slip down the table as more employers switch from generous defined benefit pensions to less generous types of pension."

"The pressure is definitely downwards. There is little chance of Britain going up the rankings."

According to the report, in the past "strong" company pensions compensated for the "inadequacy" of the state pension but this is changing.

Donald Duval, chief actuary at Aon, said: "The key risk for countries such as the UK is that companies are withdrawing defined benefit schemes because of the rapid rise in the costs of such schemes."

These gold-plated pensions are so attractive because they pay a guaranteed percentage of final salary, typically two-thirds.

Another reason for their popularity - and their rapid disappearance - is that bosses pay more money into them than into other types.

Defined benefit pensions have also become too expensive for Britain's 23 million private sector workers because people are living so much longer.

Nearly 60 per cent of final salary pensions are closed to new workers when they join the company.

In some cases, even existing workers are being told that must switch into a less generous pensions.

A spokesman for the Department for Work and Pensions said the Aon report failed to reflect its plans to improve the state pension, such as restoring the link to earnings.

"By restoring the link to earnings and modernising the contributory principle, we will make the state pension much more generous and fairer to women and carers," he said.

Tom McPhail, head of pensions research at the financial advisers Hargreaves Lansdown, partly blamed Gordon Brown for the collapse in defined benefit pensions.

One of the Chancellor's first moves when he came to power in 1997 was to scrap the dividend tax credit on pension funds, described by the Tories as one of the "great scandals of the last decade".

 

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