Pension Rules around the World

We often write about the state of UK pensions. But it’s hard to know the significance of being granted greater pension freedoms or changes to pension relief without knowing what other options are available.

Here, our Hertfordshire pension advisors take a look at what pension rules exist around the world – at what is popular, cutting edge or widely criticised – so as to shine a light on the reasoning behind our own legislation in the UK.

An Age Old Problem

Aging populations and shrinking work-forces aren’t just problematic in the UK. Germany is in the same predicament as the UK: funding the pensions of an aging populations on a ‘pay as you go’ system where the current work-force funds the current pensioners’ pay-outs.

Just like in the UK, this means that German state pensions are becoming smaller and premiums increasing. They are also raising the retirement age from 65 to 67.

In the UK, 50% of financial advisers believe the pensions system will have to change within the next 30 years. As well as increasing retirement age, 4/10 think that state pensions could become means-tested.

Means-tested state pensions operate in America, France, Denmark and many more countries. However, it’s a move that pension minister Ros Altmann has flatly rejected.

Smart Ways of Funding

Norway is famous for its Government Pension Fund of Norway. Owned by the government, this fund is best understood by reference to its previous name, The Government Petroleum Fund.

The fund, which was started with wealth created by Norway’s North Sea oil reserves, is now the largest fund in the world, with 1% of every dollar invested coming from this fund. The revenues from the fund then pay for Norway’s state pension.

Some arguments for Scottish independence came from the idea of implementing a similar system in an independent Scotland. The success of the scheme has afforded Norwegians a state pension which is comparatively large. Norwegians over 67 can expect 90072 Kroner (around £8800) a year, compared to UK citizens who receive only £6029 a year.

Vanishing Success

A problem Norway faces is that their high cost of living, combined with their generous state pension cause many pensioners to take their Norwegian state pension to another country.

Norwegian retirees believe they can enjoy a better standard of living outside their home country, where living costs have been rising for years. For Brits and Norwegians alike, taking a pension abroad can be a great way to make the most of your savings and investments.

China Sends Pensions to Market

Meanwhile in China, following August’s ‘Black Monday’, the government is allowing the state pension fund to invest in the stock market for the first time in its history.

Although this is likely an attempt to prop up the markets by releasing almost unimaginably large funds into the market (China’s pension fund is believed to be around $322 billion), it could also help China with that most ubiquitous pension problem: an aging population.

Although China has relaxed its one-child policy, no baby boom has occurred. This means that despite being famous for a having a huge work force, China is now facing the same pension problems as its European counterparts.

China’s Knock-on Effect

As China ventures into the stock markets to ease pressure on their pension fund, they would do well to learn a lesson from their opposite numbers in Norway.

Norway’s much-lauded oil fund has historically performed very well, but recently it has come under criticism for not spreading its risk well enough to insure against market-specific volatility. China’s slowdown is thought to be a big contributor to Norway’s $8.8 billion loss in Q2. Other factors, such as uncertainty over Greece and low global oil prices, also play a part however.

China are being careful to limit their pension fund investment to 30% of the total fund, and are also only investing in their domestic stocks. This will minimise risk since China already keeps a close reign on its domestic exchanges and currency.

For advice about planning your pension, talk to our expert pension advisors today.
