Britons have worst state pension in EU

The basic state pension of £87.30 a week is equivalent to just 17 per cent of the average wage, it found.

This figure rises to 30 per cent once pension payments related to earnings are taken into account.

But this is still only half the EU average of 60 per cent, the financial firm Aon Consulting said. Its study concluded: "The inadequacy of the state system is beyond question."

Charities including Help the Aged warn the problem has been made worse because the state pension has failed to keep pace with increases in the cost of essentials such as heating, water, and council tax.

A recent study found a quarter of pensioners are having to cut back on basics to survive. Until recently many British workers could rely on private pensions such as final salary schemes.

However, many of the most generous schemes have been replaced by deals requiring higher monthly payments in return for a smaller pension.

In addition, the study said a "spate" of banking scandals and crises had damaged confidence in the private pension system.

As a result, Britons are not investing in private pensions on the scale needed to make up for the state system's failings.

The average age of retirement in Britain - 62.6 - is also above the EU average of 61. Some 57 per cent of Britons aged between 55 and 64 are in paid employment.

Aon found the value of Britain's state pension for a single person is 30.8 per cent of the average wage. This figure is 32.5 per cent in Ireland, 39.9 per cent in Germany and 51.2 per cent in France.

The most generous state pension is offered by Greece, where the figure is 95.7 per cent.

Aon said Britain's ageing population is reliant on young immigrants to boost the number of workers, generating taxes to fund pensions.

But it stressed this was not a longterm solution to the pensions crisis.

The firm's chief actuary, Donald Duval, said: "Migrant workers have helped boost the pension pot in the UK to mitigate against its demomeal-graphic problems but this is not a sustainable measure. It is a smokescreen hiding deeper issues facing the pension system.

"More needs to be done to restore confidence in private schemes so as to drive an increased level of contributions. People cannot afford to rely on the state pension, which remains the lowest in Europe.

"The 2005 Turner Report on the future of pensions concluded that the ageing population left the UK with four choices: lower pensions, higher retirement ages, higher member contributions or higher taxes.

"Assuming that the first is unacceptable, some combination of the latter three needs to be encouraged."

A spokesman for Help the Aged said: "Pensioners are resorting to strategies such as buying cut-price food that is nearly out of date.

"Increasingly the poorest pensioners are turning to friends and family to help them out.

"Debt agencies are also reporting an increase in the number of older people who have borrowed money they can't repay.

"Simple things like going out for a meal or inviting people to your home become impossible. Holidays are completely out of the question, while people have to cut back on hobbies and social events."

The Government plans to restore a link between rises in earnings and rises in the basic pension by 2012.

However, this will be part of a package that will also raise the retirement age from 65 in 2024 to 68 by 2050.

• The Government should ignore some of the money pensioners receive from private schemes to encourage more Britons to save towards their retirement, a report suggests.

The Pensions Policy Institute said many are afraid to invest in private schemes because they would lose means-tested state benefits.

The research charity suggested the Government should therefore disregard the first £12 a week someone receives from a private pension when calculating their state benefits.

This would allow someone to have a pension fund worth £6,000 before it affected their means-tested benefits.