What Went Wrong with the UK Pension System 

CORRECTION: At 0:55, we imply that the state pension age in the UK is 65, when it actually went up to 66 in 2020. Some commenters have also questioned our use of "net replacement rate" as a metric of pensioner wealth. For context, net pension replacement rate is defined as net pension entitlement relative to net pre-retirement earnings. To be fair, in certain respects this isn't the bet way of comparing pensions internationally, because countries with lower wages will generally have higher "replacement rates", but equally you wouldn't just want to use an absolute measure, because that would overstate the prosperity of pensioners in countries with higher wages, even if they were relatively poor within those countries. Anyway, we hope you nonetheless enjoyed the video!

Each time I watch a TLDR video about the UK I am wondering what the hell I am still doing in this country.

It all comes back to a lack of affordable housing. A lack of affordable housing = couples putting off having kids = smaller number of workers for a larger number of pensioners

Tldr: we’re f*cked

When I was in school my maths teacher warned us not to rely on getting a state pension as it was not mathematically viable. 40 year old me is happy I had a great teacher and am not replying on receiving one in order to retire.

This is a disgraceful misrepresentation. The destruction of UK pensions was caused by Gordon Brown removing dividend tax credits for pension funds in the late 1990s, lowering UK pension scheme revenues by £5billion per annum leading to the virtual wipe out of final salary pensions. Prior to that Thatcher’s policies had left most pension funds. with significant surpluses

I have two pensions. I would much rather have had a Roth 401k throughout my working lifetime. 500/month invested from 25 - 65 at 9% is 2.3mil. I hate my job but can't leave because of I won't get my state pension. What do you think about doing a 70/30 stocks bond ratio?

It's funny how no politicians' million pound pension pots are bever effected.

what went wrong with the UK should be your next video

At this point the whole UK is a crisis 😅

"X perfect of pensioners are below the poverty line!" And how many NON-pensions are below the poverty line?! If everyone is poor, and the pensioners are also poor, you don't have a problem with the pensions system. You just have a problem.

One thing you didn't mention is how private pensions can be sold off and devalued, reducing the pot you paid into. It's another scam

Hows about we start reforming public pensions . 2.6 Trillion liabilities . Civil servents retiring early with million pound pension pots but telling the scaffolders & bricklayers they need to work to 67 & up because there is no money . Money for them though . Absolutely disgusting.

Save for your old age, because they’ll try their hardest to make sure you never see your state pension.

Is anything actually working here?

Did you know that in the UK, only 11% of pensioners collect their full pension. The rest goes back to the gov once they die. And you see declining health and well being in this country with our deteriorating healthcare system ...let that sink in, and realise what is really going on here.

I’m from the UK and moved to Iceland 🇮🇸 14 years ago, not sure why Iceland appears so low in the stats in this video. There are mandatory pensions plus private pension savings. In the years I have worked here my Icelandic pension is ~£2000 per month, which is already better than the full UK State pension, and is on track to afford me a comfortable retirement.

Too many non-deserving people get a UK pension, free health care, accommodation, schooling, disability payments, social care - anything and everything, without paying into the system. Thats bollocks!

State pension is currently from 66 not from 65

Lowest pension in the western World & they claim they cant afford it . Ridiculous.

The personal tax allowance being frozen is going to bring pensioners into the tax paying bracket. So how is this going to help pensioners.

AI bots and trolls aside, this is a really important issue. At 58, and on a low income, I suspect that I'll be tapping into my pension before I retire. In the long term, I suspect we'll be back to pre state pension days where you'll only retire if you have the funds to do so - assuming there's actually any work that'll be available for someone in their late 60s. It's a miserable state of affairs, and the fact that pension funds invest in the stock markets means we suddenly need capitalism to succeed, even as it erodes the rights of workers.

You missed 2 massive events. In 1978 there was a 2% rise in NI to fund the State Earnings Related Pension Scheme (SERPS). This meant that everyone working 40 years would get 50% of their final salary each year on top of the static state pension. If you wished, you could divert this additional NI contribution to a company final salary pension scheme (a DBS) and potentially get 66% of your final salary. If your company didn't run such a scheme you could divert this 2% and additional contributions from you and/or your company into a pension pot (a DCS or SIPP). Nobody who has worked from 1978 onwards should get only the basic state pension. As mentioned below, Gordon Brown introduced Dividend tax which massively curtailed the growth of pension pots. It was Gordon who is responsible for pension poverty. The 2016 legislation meant that anyone with a pension pot did not have to convert it into an annuity, which was the only option for most pension pots. You suggest that the 2016 legislation introduced the 25% tax free lump sum, but that was always possible when converting a pension pot to an annuity. Not only possible, but most common. I think you need to restudy the last 50 years.

Seems to me like it’s a mix of bad planning from the government and terrible financial literacy from the general public.

No mention of Gordon Brown taxing dividend income, killing off final salary pensions in the private sector.

would have been nice to get an explanation of what the net pension replacement rate is within the video

And who's giving all the boat people a pension when they are old?

Basically, raise the pension age until there's no more people left alive to claim pension, problem solved. Literally what they are doing.

One reason why people aged 55 --> state pension age use the option to withdraw private pension savings is that they have to pay for private healthcare because the NHS waiting lists are endless.

'People aren't saving enough for retirement'. Some are, but there are also some AWFUL private pension providers out there. My father retired in 2016. When he checked one of his several private pensions, he found that it was actually LOSING more money each month than he was putting in. In my experience the fees charged by some providers are nothing short of scandalous (and far from transparent). The regulation of private pensions seems to only be concerned with either money laundering or what people choose to do with their pensions AFTER they retire. There is IMO, wholesale THEFT going on in the private pension sector. Sky high fees being charged REGARDLESS of performance (which I've seen in my own private pension). How can that be right? Also if these private pension funds are being used by these companies to invest in UK property, that will naturally have an inflationary effect, often times negating any 'gains' made by the pensioner (especially after pension provider fees). This inflation, especially around housing also makes life difficult for youngsters to afford ever rising rents or property prices. Also the tax burden on many pensioners is much higher than you would think. On one of my father private pensions, the govt takes almost 50% of what he gets each month (and it isn't a lot isn't a lot). My father worked EVERY DAY of his life since the age of 15 till 66. My mother is even worse off as she had no private pension and her state pension is affected by the time she took out of work raising myself and my brother until we went to school. If she were unmarried, she'd be destitute. Yet we apparently have unlimited funds for hotels etc etc for anybody with the brass-neck to just turn up in a dinghy.....

The reason that Thatcher's reforms were reversed is because the private pensions which emerged from it were a disaster. All sorts of absurd claims were made for just how good private pensions would be but, even with tax concessions, the returns were paltry. This is due to the failure of the economy to live up to expectations and (generally unreported) abuses within the pensions industry. It's certainly the case that anyone investing in property since the time of Thatcher would have done much, much better. You could have invested in just about anything and done better - tins of sardines, for example!

A state pension is just over £221 a week. My private pension goes down in value, inflation and costs, so I take out what I can, so I can enjoy it now, I am in my late 50’s and have various health issues, so I really don’t care!

Love how increasing pension contributions is not mentioned as an option alongside the others...

3:13 this statistic is seriously misleading, and you haven't explained what Net Pension Replacement Rates are. Suggesting that retirees in Costa Rica or Colombia are better off in terms of implied quality of life than in the UK is laughable. When the average wage in the UK is so much higher than these countries, it's far harder to replace close to 100% of someone's salary with a state pension. We couldn't even remotely afford to pay UK retirees 100% of their wage as a pension. It's telling that other countries usually lauded for their high standard of living Germany, Norway and Iceland are almost identical to the UK on this graph.

The same problem with everything else in the UK. Unchecked corruption and greed.

The problem is multifaceted. 1. State pension is an unfunded scheme - meaning it is paid for out of current taxation (in essence a glorified ponzi scheme). 2. The Baby Boom generation is retiring - meaning there are more pensioners coming into the system. 3. The birth rate dropped after the baby boom, meaning there are proportionately less people of working age paying tax. 4. Life expectancy has increased massively (from 71 in 1970 to over 80 today) - so people entering retirement age are drawing their pensions for longer. 5. State pension age has not increased commensurately with the increase in life expectancy.

Don't rely on government for your pension

Perhaps the State pension is so low is because so much government money is going to pay extremely generous civil service salaries and pensions.

Could it have something to do with the government giving full pensions to people who didn't contribute anything to the system?

So many errors in this: - The graph in the intro only uses state pension and ignores occupational & private pension provision. - 0:54 No, there are three types: Pillar 1 (state pension), Pillar 2 (occupational pensions) and Pillar 3 (private pensions). - The state pension age isn't 65 anymore, it;' currently 66 years & 10 months. - Pillar 2 & 3 pensions aren't subsidised by the government. Personal contributions are considered to be deferred income so are under the Exempt, Exempt, Taxed basis vs ISAs for example that are Taxed, Exempt, Exempt. - The Thatcher government recognised that the then current system was unsustainable and it had to change. The impact on poverty was baked in. The graph ignores the impact of SERPS. The point of large numbers of pensioners being in poverty is true, but that was also true beforehand. - Before Auto Enrolment, 10m workers had no pension beyond the state pension which meant they were guaranteed to be in poverty oat retirement. This was the most second most important change this century. The most important being Labour's changes to occupational pensions: Brown's tax raid (which has pulled hundred of billions out of occupational pensions) and the EU requirement for Mark to Market, changing the valuation of bonds & gilts. These led to schemes being unaffordable, driving the closure of defined benefit schemes. It also led to schemes pulling out of UK equities from 2006, which is the initial driver of the collapse in listings on the UK stock market. - The Triple Lock was only signed off because it was a temporary policy meant to only last for the term of the coalition government and cost a few hundred million pounds. It actually cost £7.7bn over that period and the costs have grown exponentially. Money isn't infinite so we can have a higher pension but start it later or take less and have a slower increase in pension age. - Some UK pensioners are in relative but not absolute poverty. The distinction is important. - 3:33 The point of people not saving enough is true. The AE savings rate needs to increase to at least 12% and remove the ability to opt-out. Those 10m that first joined a pension with AE in 2012 don't have the time or contribution levels to save enough. - The Pensions Freedom comments are just extraordinarily wrong. The 25% tax free withdrawal was not in any way introduced by Osborne, he removed the obligation for pensioners to buy an annuity at retirement, very few of which obtained an even reasonable deal. At the time the average pension pot was worth around £25k but retirees also typically had around the same amount in debt. Osborne set up a system allowing people to manage their money in a way that suited them. The fascist!

Most rich people stay rich by spending like the poor and investing without stopping then most poor people stay poor by spending like the rich yet not investing like the rich but impressing them

Don't worry. The NHS is bumping off older people.

no mention of public sector pensions this is where the problem is. .

if you only have a state pension, youve always lived in poverty, why should you suddenly be rich on money youve never paid in, are millenials and gen z meant to pay for this, were already poor

This completely ignores the pension credit benefits that all discussions around pensions seem to ignore.

What's the problem ? British pensioners will always be able to go and live out their last years in some poorer country where life costs less, like Spain or Portugal, since there is still freedom of moveme... Oh no wait!!!

Im 35 now and I've extrapolated my pension out, and, even though I have a reasonably good salary, if I were to put in 20% of my salary into my pension per year (which I can't afford) and look to retire before 65 then I will be below minimum wage at retirement. I've been speaking with most of my colleagues who are about to retire and every one of them have nearly 350k more in their pension pot than I will at retirement. I don't think enough young people are considering how bad/unbalanced the pension schemes are now or how poor they will be at retirement.

I and my wife worked for years, paying both national insurance and company pensions so we could have a reasonably comfortable life when we retired, now if I claim all my personal pensions I will pay tax on money I have already paid tax on, they claim government pension is taxed but it counts towards tax, that sounds like a taxable item to me, this is just hiding tax and makes life a lot harder than we were lead to beleive

Everyone says the next video should be what went wrong with the UK, but it'd be a quick video consisting of two words: Margret Thatcher.

I did sociology in the 90s my teacher was warning about this.

Gordon brown raided the pension pot when he was chancellor

No mention that the government taxes pensions after paying tax on our earnings the government has taxed it again whilst mps retire early with golden handshakes

0:30 It´s worth mentioning also that some public service jobs have higher pensions, i.e teacher pensions are a bit higher as are civil service pensions, Also, it needs to be put into context that in the UK you can qualify for other benefits as a pensioner, i.e you can qualify for housing benefit. But basically it´s right. I really hate Thatcherite mentalities, it does seem to me to make more sense to require us to pay more tax, but then we get more services. The thing is, you can´t guarantee in EU countries either that there won´t be a hardline Thatcherite government in power some day. It´s worth making extra provisions for retirement because you never know how things might be.

Net pension replacement doesn't really tell you a lot, depending on whether this is for previously high earners or previously low earners. State pensions should be fairly flat, so a net pension replacement of 100% isn't at all desirable, since it just means subsidising already wealthy people. Simultaneously, a country can have a fairly high net pension replacement, but by one means or another fail exactly at those that would need government pensions the most, depending on how they are calculated. In general, in a country with fairly high gaps between the rich, let alone super rich, and the poor, averages tell you very little. Median would be better, but still fairly basic, while low % quantils may actually come closer to telling the actual story.

3:08 Everyone under 35... "Looks like I'm going to be taking an extended trip to Portugal"

"Triple lock" is the worst financial decision ever. Most certain route to Government ruin ever imagined.

That many pensioners choose to take our 25% is ultimately their call. Their money, they can spend it on what they want. Yes, some pensioners, and too many people working, are having to borrow to fund their life, but too often they need to look at their expenses and income, and make different decisions. I know this is harsh, but otherwise we introduce moral hazard, and it's not on me or other taxpayers to fund your poor choices or lack of desire to improve your situation. For those of us still working, I reckon at this stage we should just assume we won't get the state pension. Plan accordingly. This video broadly, for me, is further justification that we need to tax wealth, not primarily income. You already have the top 20% of earners paying 80% of the tax, and that's only getting worse. When 1 in 4 people is the ratio, which will be more like 3 in 10 once we include unemployed, sick, etc, you're looking at perhaps 10% of people being net payers into the tax system. That surely is unsustainable, and those 1 in 10 aren't going to be happy for long remaining in the UK. Some people, including pensioners, are sitting on valuable assets that are being used inefficiently whilst anybody with about £300K in wealth will "earn" more in a year than the average UK worker will earn after taxes, It's increasingly hard to become wealthy, but easy to remain wealthy, and if we keep taxing only those earning and producing value add output, we're making it work.

Meanwhile Swiss people just voted for a 13th month pension. But Switzerland is a 'real' democracy where citizens have a say, no Royals, no unelected lords, no aristocracy owning half of England area.. And Swiss are hard-working folks, while in UK: « Britain is among the least work-oriented countries in the world, according to the research by the Policy Institute at King’s College London. » 7 Sep 2023

Annuity rates plummeted making it impossible to live off private pension funds as returns are to low.

As soon as I started work, I followed my banker Grandfather's advice and put in the maximum amount I could into my private pension. Given its getting topped up to 20% by my company, I feel comfortable with what I have. I am surprised many others don't do the same because its almost like they forget it reduces your income tax bill too.

"This had a lot to do with Margaret Thatcher's government...", Why am I not surprised.

What is a net replacement rate?

It's disgusting the distrust they've sown between young people and old people - this all started with David Willet's book "The Pinch" which just so happened to be published in 2010 after the financial crisis in 2008. Because of course "the party of personal responsibility" can't ever take responsibility for their neoliberal economics and their spiv friends in the City

No mention of looking to Australia to solve your crisis, especially when your government is supposed to looking at the Australian system of superannuation. Superannuation is a mandatory contribution started in 1990s for ALL workers.

Whenever i hear of a political problem at home, i am truly gratefull for the british. They always give me the feeling of: Even though its bad here, it could be worse

Its pretty obvious,it simply isn't enough.

Firstly, thank you all for the great explanations of many complicated aspects of politics and social policies.

That felt more bias than usual

LMFAO THE BOTS IN THE COMMENTS

The pension structure is changed with every government if not more often. Sometimes contract in, sometimes contract out. Some contract out pensions disappeared with the companies. A embarrassing amount of people die before getting anywhere near pension age, as retirement age increases it will get worse. Why save for a pension you probably won't collect on . Governments have created a job market where 'good' jobs are a rarity. Many people are living hand to mouth. It is getting worse.

Love the fresh angle you bring to what you cover

This is one of the most suspect presentations I have seen on TLDR, which is usually pretty good. What the heck is the "Net Pension Replacement Rate" and why was it chosen as the preferred measure here? Without explanation the graphic makes it look as though the UK has lower pensions than Colombia, Mexico and Costa Rica. Does it? I suspect the ""Net Pension Replacement Rate" means the percentage of the workers original wage that is received in pensions after retirement. If so, a poor wage with a 100% "Net Pension Replacement Rate" would still be a poor income, but would look good on this highly selective graphic. There is also a lot of talk about "relative poverty" and absolutely none about "absolute poverty". I am in relative poverty compared to a millionaire, but still doing adequately. What we need to know is how many people are in absolute poverty.

"...there are two ways the government could relive this pressure." - This is quite the false dichotomy, no? Not just a simplification but it's missing out on logical alternatives (irrespective of political practicality). The most obvious is to increase the amount of money coming in from earners vs those using their state pension. More tax from workers. Yes, that could mean workers paying more (you didn't mention contribution rates when comparing pre to post Thatcher), but it could also mean increasing the number of younger people. Addressing the reasons people are having fewer children, increasing immigration for younger people (gasp!)...

How much money would we save if MP,s wages were capped at the minimum wage limit, with no golden handshakes, no second third fourth fifth jobs, handouts from rich people and companies buying their loyalty. No expenses etc, you the people can not get expenses paid out at 1% of what an MP claims.

they dont want anyone to get a state pension

More and more people might face a tough time in retirement. Low-paying jobs, inflation, and high rents make it hard to save. Now, middle-class Americans find it tough to own a home too, leaving them without a place to retire.

We could have done with an explanation as to how countries like Portugal, Greece, Spain and Italy can afford such extravagant pensions when countries like Britain, Germany and the USA cannot? It’s not like the British Government isn’t spending money. Taxes are at a near 80 year high yet despite that the Government is still borrowing vast sums of money every year.

"It seems the most vulnerable of society will be getting the short end of the stick." That's literally all of human history since the rise of the first cities.

And add on to my last comment, we don't own our own home, we were never in a position to buy so we have to pay increasingly higher rents, we are not eligible to rent through a local housing we are moved further and further down the list while people coming into the country are given priority

The U.K. has one of the worst pension systems in the world? What utter nonsense. 😂

Are pension funds a pyramid scheme in the sense that if the contributing population grows at a lower rate than the withdrawing population it becomes unstable?

You could have mentioned the 2007 subprime miss-selling scandal (aka global financial crisis), since when private/ occupational pensions values were never the same again.

Would have liked more about how U.K. compares to other countries specifically and whether those countries face similar problems. Also more around potential alternatives that have been proposed (if any have been). For example moving to a means tested model

Oh dear, TLDR, it’s all down to the Tories again, did you forget to mention Gordon Browns tax raid on pensions or deliberately omit it?

Why does the government need to subsidise the private pensions.

The Irish Government have set up a wealth fund This fund will be topped up every year untill 2040. The function of the fund is to build up reserves when there are not enough earners to support the pensioners.

George Osborne's reform was the right thing to do: People should be free to spend, save or invest their own money as they see fit

Mistake in the first minute: the state pension age in the UK is 67, not 65.

What happened!? It went from 25 workers per retire for 5 years; to about 8 workers per retire for 30 years. State pension equals bust. Private pensions are just as broken. They require ever increasing stock market performance, which isn't healthy for the stock market. If a company needs to spend money on R AND D it's profits drop and thus it's stock prices. Problem is that we didn't have enough kids or create enough jobs. In 2008 we allowed money printing, which is pumped into the stock market causing inflation.

This was like a party political broadcast for the Labour Party. TLDR feels like it’s headed increasingly left..

Bloodborne was a documentary about trying to escape the UK

With an aging population, medical technology advancements, and adverse psychological effects of retirement ... maybe we should abandon the concept and go for half-in half-out retirement in terms of mandatory pension funds (I'm not British thankfully, so I don't know how the British system works) with voluntary contributions if you want to aim for 100% retirement.

A lot of people are bad with money, that is the problem. People will spend £8 on lunch in a Costa every day and wonder why they can't afford to buy a house or retire early.

Need to have compulsory superannuation as we have in Australia. It does mean that everyone is an indirect or even direct investor in the stock market, and if there's a crash everyone suddenly gets much less to retire on. But the core idea is good.

Me clicking play on this video: Thatcherism. I bet it was Thatcherism and the selfish "me and my own only " attitudes that came from it. The video: "It all started with Margret Thatcher..." Me: Yep, called it. We need to finally put her way of politics to bed. Yes it's great for people to build themselves up and stand on their own two feet. But the point of government and a public pot of money (funded by taxation) is that everyone has a moment in their lives when they can't stand on their own two feet or can't afford to do what needs to be done. Even if you are the wealthiest person in the world, you still need the systems of health care and education we have in place in this country to help you at your worst. Without them you'd be dead a lot sooner. After all, who do you think does that medical research for the drug you didn't need in your 20s and spends a lifetime to learn to be a nurse (despite the low pay) so they can look after you in your old age. If we scrapped all of this and became right wing socio-economic islands we wouldn't have anything worth while and even the wealthiest in society would be at a loss as to what to do when things go wrong. Do your best in life, pay into the public purse and help others do their best to do the same. But, understand that everyone is different and that sometimes people need more support to be their best. Be kind to one another. Have a lovely day.

"What went wrong with..." Greedy Tories. Everytime. Without fail.

I paid a high rate of national insurance including SERPS for 51 years! If various governments over that time had invested that money as a private pension would have they wouldn't have to spin the line that the young people today are paying my pension. That's Crap its all down to Fiscal incompetence or worse Corruption Or both 😡

One of the reasons people dont save is that unless you are very wealthy , it isnt worth it. Add in pension credits to those with just state versus someone with a big enough pot to disqualify you from additional help, and as a friends mum did some years ago, you find for your years of savings, you are 6 quid a week better off. Not worth it at a certain point

Thatcher was right: State pensions are not the solution and the UK can be glad that it'sn't in as a miserable state as most first world countries.

answer = conservative government