How European Countries Stack Up on Pension Spending – And What It Means for You

For anyone planning for retirement or actively drawing a pension, understanding how much countries actually invest in their retirees is crucial. Not all pension systems are created equal — and new data from Eurostat and Visual Capitalist reveals just how stark those differences can be across Europe.

1. What the Chart Shows

The chart compares:

• Average pension spending per retiree in both Euros and PPS (Purchasing Power Standard) — which adjusts for cost of living differences.
  

• Pensions as a % of GDP — a key indicator of how much a country prioritises its retirees in its overall economic planning.

The data covers 2022 figures for "old age pensions only" — excluding early retirement, disability, or survivor benefits. It provides a telling story of which countries are investing the most in their ageing population.

2. The Leaders: Who Pays the Most?

Some of the top-performing countries in terms of pension generosity might surprise you.

🇮🇸 Iceland: Leading in Real Terms

• €36,000 average per retiree (in Euros)

• €20.7K in PPS

• 6.8% of GDP spent on pensions

While Iceland leads in actual Euros, its PPS-adjusted value puts it lower than countries like Austria and the Netherlands, reflecting its high cost of living. Still, €36,000 per retiree shows real commitment.

🇱🇺 Luxembourg: High Wages, High Pensions

• €31.8K average per retiree

• €20.8K in PPS

• 5.5% of GDP

A small, affluent country with high wages and a large financial sector, Luxembourg appears generous. But its pension as % of GDP is modest, suggesting strong private saving and occupational pensions support the system.

🇳🇴 Norway and 🇩🇰 Denmark

• Both Nordic countries spend more than €30K per retiree — no surprise given their strong welfare states.
  

• Pension spending accounts for just 5.6% and 5.5% of GDP respectively — indicating their overall fiscal strength.
  

3. Heavy Spenders Relative to GDP: A Different Picture

When we shift focus to pensions as a % of GDP, the leaders are different.

🇫🇷 France: 12.1% of GDP

France tops the list in GDP share, despite a lower average payout than its Nordic peers:

• €18.9K per retiree

• Protests around pension reform (e.g. raising retirement age) show how politically sensitive pensions are in France.

🇬🇷 Greece: 11.6% of GDP

• Just €14.6K in Euro terms

• Greece’s high GDP share despite modest pensions reflects demographic pressure (ageing population) and weak GDP growth post-crisis.

🇮🇹 Italy and 🇫🇮 Finland: 10.6–10.7% of GDP

Italy’s pensions are relatively generous in PPS, and form a key part of its social safety net, especially with youth unemployment still high.

4. The Middle Ground: Germany, Spain, Ireland, and the UK

Let’s zoom in on some key economies.

🇩🇪 Germany

• €17.9K average payout

• 8.9% of GDP Germany’s pension system is facing pressure from an ageing population and a low birth rate, pushing the government to explore hybrid models involving private pensions.

🇪🇸 Spain

• €19.4K average payout

• 8.9% of GDP Despite high youth unemployment and a slow recovery from the debt crisis, Spain continues to offer relatively strong pension support.

🇮🇪 Ireland

• €21.8K per retiree in Euros

• But only 3.0% of GDP — the lowest on the chart.Ireland is the clear outlier: high spending per person but a small overall footprint. Why? A younger population and a stronger reliance on private pensions.

5. Where Is the UK in All of This?

🇬🇧 Missing From the Chart – But Far From Exceptional

Interestingly, the UK isn’t listed in this chart, but that absence is telling in itself. According to OECD and UK Government data, the UK spends about:

• 5.5% of GDP on public pensions

• Average state pension payout is £10,600/year (~€12,400), which would place the UK somewhere between Greece and Portugal.

In fact, the UK has one of the least generous state pensions in the developed world, when compared in relation to average wages. The OECD shows the UK replacement rate (percentage of salary replaced by pension) is just 28.4%, compared to the OECD average of 51.8%.

For British readers, this highlights why private pension saving is not optional — it’s essential.

6. Eastern Europe: Low Spend, But Growing Pressure

Countries like Romania, Lithuania, and Albania spend less than €10K per retiree. Some key takeaways:

• Lower costs of living explain part of the difference, but even in PPS, the figures remain much lower than in Western Europe.

• Demographic trends are accelerating change. Many of these countries face outmigration, ageing populations, and weak productivity growth.

For example:

• Romania spends only €9.6K per retiree, and 5.4% of GDP

• Albania has the lowest pension payout: €3,000 in Euros; €1.6K in PPS

Many of these states will need to either reform or increase contributions if they want sustainable pension systems going forward.

7. What’s the Role of PPS — and Why It Matters

The chart cleverly uses PPS (Purchasing Power Standard) to equalise pensions by adjusting for the cost of living.

For example:

• Switzerland pays €27K in Euros, but only €14.8K in PPS — showing its high living costs

• Portugal has one of the biggest jumps: €13.2K in Euros → €11.3K in PPS, showing relative affordability

Using PPS is crucial for accurate cross-country comparisons. For British investors, this is a reminder that headline numbers can be deceiving if you don't account for inflation and real purchasing power.

8. The UK Pension Landscape – What You Should Know

For readers in the UK, here’s how the current system works:

• State Pension (2024/25): £221.20/week, or £11,502.40 per year

• You need 35 years of full National Insurance contributions for the full amount

• Auto-enrolment into workplace pensions has improved private saving, but coverage gaps remain (especially among self-employed and women)

➤ According to the Pensions Policy Institute:

• 43% of people aren’t saving enough for a moderate retirement lifestyle

• Private pension wealth inequality is rising — with the top 20% owning over 80% of pension assets
  

9. What Investors Should Take Away

Don’t rely on the state alone

As the UK lags behind peers in both pension generosity and GDP allocation, private saving is key. Consider:

• SIPP (Self-Invested Personal Pension)

• ISA wrappers for flexibility

• Long-term investing in dividend-paying equities

❖ Know your target

Use tools like:

• Retirement calculators

• The Pensions and Lifetime Savings Association’s Retirement Living Standards (which defines "Minimum", "Moderate" and "Comfortable" retirement benchmarks)

❖ Hedge against inflation

Given the real-terms decline of UK pensions in the face of inflation, growth-focused investment strategies — including global equities — are increasingly vital.

10. Conclusion: A Tale of Two Europes — and a Wake-Up Call for the UK

Europe’s pension map reveals two starkly different stories:

• Western and Nordic Europe continues to provide relatively strong public pension support

• Eastern and Southern Europe faces affordability and demographic challenges

And the UK sits awkwardly in the middle — neither offering high payouts nor topping GDP allocations.

For UK investors and pensioners, this is a clear message: you need to take your retirement planning into your own hands.

Sources:

• Eurostat (2022) – "Old Age Pensions by Function"

• OECD Pensions at a Glance 2023

• Pensions Policy Institute (UK) – Retirement Income Data 2023

• UK Government – Department for Work and Pensions (DWP)

• Visual Capitalist – European Countries Giving the Most in Pensions (2024)
  

  Disclaimer: Past performance is not indicative of future results. Investments can fall as well as rise, and you may get back less than the original amount invested.

  This article is for educational purposes only and does not constitute financial advice. Always consult a qualified advisor before making investment decisions.

  Individual pension needs and outcomes will vary. Examples shown are for illustrative purposes only. Readers are encouraged to conduct their own research and seek professional advice before acting on any information provided in this blog. The author is not responsible for any investment decisions made based on the content of this blog.

  
  

  Alpesh Patel OBE

  www.campaignforamillion.com