Is UK pension system flawed?

Highlights

• The UK’s state pension system has been declared as the world’s third worst, offering only 28.5% of pre-retirement earning.
• The UK government has decided to replace triple lock pension with double lock for a year.
• A recent study has revealed that the British workforce may lose up to 50 million on pension by 2050.

The Pension and Lifetime Saving Association (PLSA) has warned that the UK’s pension system is staring at a massive crisis in the days to come mainly due to inadequate amount of money going into long-term savings.

This week, thousands of university staff went on a three-day strike called by the University and College Union (UCU) over pay and pensions, which likely to affect millions across England, Northern Ireland and Scotland.

The strike is over the management and financing of the University Superannuation Scheme (USS) that offers pensions to older research institutes, universities and academic thinktanks. The union said that staff pay has been reduced by 20% after a year of pay below inflation, whereas they demanded increase in the pay of members by £2,500 and better working conditions and pensions. Also, one-third of the university staff are on insecure contracts, with 15% gender pay gap.

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Anyways with the replacement of triple lock pension with the double lock scheme, the state pensioners will lose a lot in 2022, as it will now rise by either 2.5% or in line with the inflation rate, which will not be enough to cover living costs. The decision was taken when the average earning lead pensions increase by 8%, making it unaffordable for the Boris Johnson government.

The UK may face a cost of living crisis very soon. In October, the inflation was at 4.2%, which is the highest level in a decade. Experts warned that around 5.5 million public sector workers will need 7.1% pay rise from April 2022 to maintain the standard of living. It will also affect 12.3 million state pensioners.

Also read: Why ending Triple lock state pension could be damaging

In 2020, over 50,000 NHS doctors and healthcare workers quit the health service’s pension scheme, and it is believed that tens of thousands may refuse to work extra hours and may likely to leave their jobs early to avoid huge tax bills. A recent study by the Department for Work and Pensions has revealed that the British workforce may lose up to 50 million on pension by 2050.

Underpaid pensions

In September, the National Audit Office (NAO) reported that around 134,000 pensioners were not provided pensions due to outdated computer systems. As per reports, as most tasks were done manually, over £1 billion pension could not be paid to the holders. The UK’s state pension system was declared as the world’s third worst, offering only 28.5% of pre-retirement earning, less than half of the world’s average of 58.8%.

Also read: What Is The State Pension? Does Everyone In The UK Get A State Pension?

How to boost your retirement income

The best thing you can do is to keep a proper record of everything. Every Briton is eligible to receive state pension after attaining the pension age of 66, but they have to make National Insurance Contributions, which currently secure state pension of 1/35 of £179.60 per week. So, the NI credits buys £267 of additional annual pension.

Parents automatically gets NI credits, if the child under the age of 12  is living with them. A parent with income over £50,000 sometimes abandons child benefit payment to reduce tax liability, but they may miss out state pension credits payable to non-working parent.       

With the increasing cost of childcare some relatives voluntarily take charge to look after the kids of their extended family members. These relatives may claim NI credits to HMRC for child under 12 through specified adult child credit. In that case, both the parents should be working and earning minimum national living wage for at least 16 hours every week.

Also read: State Pension Age Raised To 66 Years: What All You Need to Know