Overhaul of state pensions urged by think-tank

Britain's state pension system is inadequate and unsustainable, a financial think-tank said yesterday.

An urgent overhaul was needed to ensure workers did not end up with "socially unacceptable" payouts, the Pensions Policy Institute warned. The report found the state pension in Britain was equivalent to a quarter of the average income. In France, Germany and Italy, pensioners received an amount equivalent to 75 per cent of average earnings.

Despite the concerns, public spending on pensions in the UK is expected to fall over the next few decades, from 5.5 per cent of GDP to 4.4 per cent by 2050. At the same time, there will be a 40 per cent rise in the number of pensioners, meaning a depleted amount of money will have to be spread among rising numbers of people. More than one in five of today's pensioners lives in poverty.

Alison O'Connell, director of the institute, said: "Reforming state pensions is the most important step in solving the growing discontent with our pensions system. State pension benefits are the only income the poorest in the population will have to live on in retirement.

"The state system is widely criticised for being complex and inadequate. It is thought that the policies underlying the system are unsustainable."

The report said the state system worked particularly badly for women, and private pensions were not able to bridge the gap to give people a decent income in their last years. Ms O'Connell added: "Private pensions stand a chance of flourishing only if they can be placed on a secure foundation."

In October, the Government will introduce the pension credit, designed to top up the income of the poorest pensioners. But the institute's report said elderly people had proved extremely reluctant to claim means-tested benefits.