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Millions of Brits could see a significant improvement in their retirement prospects after HM Treasury revealed plans to double the number of UK pension megafunds by 2030.
These megafunds involve the consolidation of smaller pension schemes—such as those from local authorities and private sector workplaces—into larger, pooled investment funds. The idea is that managing larger funds collectively can generate stronger returns. According to the government, this move is intended to boost domestic investment by channeling more money into the UK economy, particularly in the areas of housing development and high-growth businesses.
HM Treasury stated that “over £50 billion has already been secured through a recent voluntary pledge from pension funds to invest five percent of their assets in the UK.” Additionally, local government pension schemes will now face new investment targets aimed at reversing the steady decline in domestic investments. Back in 2012, over 50% of Defined Contribution pension assets were invested within the UK—today, that figure has dropped to around 20%.
At present, the full State Pension in the UK stands at £230.25 per week, or roughly £11,973 per year, provided individuals have the required number of qualifying National Insurance years. For those whose NI record began after April 2016, 35 qualifying years are needed to receive the full amount.
However, when compared to state pensions in nearby countries, the UK’s offering appears relatively modest. According to 2022 figures from the Organisation for Economic Co-operation and Development (OECD), the basic full pension in Iceland is worth ISK 3,439,428—around £20,063.08 per year—equal to 31% of the average worker’s earnings. That’s more than £8,000 higher than the UK equivalent.
Iceland’s system also includes a tax-free income allowance of ISK 300,000 (£1,751.11), representing about 3% of average earnings. Beyond this threshold, the basic pension is gradually reduced: 45% is deducted from additional pension income, and the same rate applies to employment income once it exceeds ISK 2,400,000 (£14,011) on top of the allowance. Pensioners in Iceland also receive an annual holiday bonus of ISK 106,765 (£623), though this too is reduced at a rate of 2% for incomes above the limits.
In terms of retirement age, the UK currently sets the State Pension age at 66 for both men and women, with an increase to 67 scheduled by 2028. Iceland’s standard pension age is already 67, though certain workers, such as seamen with over 25 years of service, may retire as early as 60. Claiming Iceland’s pension early, however, results in a reduction of 6.6% for each year the pension is taken before age 67.
Additionally, Iceland offers a pension supplement for single retirees, worth up to ISK 869,124 (around £5,072) per year—equivalent to roughly 8% of average earnings. This supplement is also subject to income-based reductions at a rate of 11.9%, using the same thresholds as the basic pension.
While Iceland’s pension system might appear much more generous on paper, there’s an important caveat: full eligibility typically requires 40 years of residency. Moreover, Iceland has a much higher cost of living—around 40% to 50% greater than the UK. As a result, expenses for food, housing, and everyday items are considerably higher, meaning any financial advantages may be offset by steeper day-to-day costs.
