The UK Government is poised for a major overhaul of pension policy, with a new review into the state pension age and ambitious measures considered to boost retirement savings. This follows mounting fears that millions of workers might face financial struggles in their later years.
Labour’s Work and Pensions Secretary, Liz Kendall, has taken the significant step of reviving the Pensions Commission, an expert body last called in 2006. The Commission’s return aims to address stagnant pension savings and consider ways to safeguard future generations from pensioner poverty. Kendall’s review comes at a critical moment, as official figures suggest some 15 million people are not saving enough for their retirement—whilst nearly half of all working-age adults are currently not contributing to a pension at all.
The Department for Work and Pensions (DWP) has also announced the next review of the state pension age, which is already scheduled to rise from 66 to 67 between 2026 and 2028 and then to 68 by 2046. There have been previous calls to speed up this timetable, but decisions have so far been postponed. Notably, recent analysis projects that individuals planning to retire from 2050 could receive £800 less annually than today’s pensioners—a startling prediction highlighting the urgency of the issue.
Concerns aren’t limited to traditional employees. Some three million self-employed people reportedly lack any retirement savings. Equally, particular worry surrounds groups such as low-paid private sector workers and those from Pakistani and Bangladeshi backgrounds, where only around a quarter are making regular pension contributions.
Automatic enrolment—first introduced following the recommendations of the Pensions Commission—has helped boost participation rates among eligible employees from 55% in 2012 to 88% today. However, campaigners and politicians warn this is not enough. Torsten Bell, Pensions Minister, commented: “The original Commission helped drive pension saving and cut pensioner poverty. But if we continue as we are, tomorrow’s retirees risk being worse off. We must complete the job and secure comfortable retirements for workers today.”
The Government is not stopping at reviewing the state pension age. Proposals are circulating to create so-called ‘pension megapots’, which would merge smaller pension funds to improve investment returns and, potentially, deliver an average £29,000 uplift in retirement savings for typical earners. Chancellor Rachel Reeves explained: “We’re making pensions work for Britain. Our planned Pension Schemes Bill and the development of pension megafunds could lead to significant increases in people’s retirement pots. This is about ensuring working people can look forward to financial security in later life.”
The review is slated to examine the adequacy of contributions to defined contribution (DC) pension schemes—the arrangement most commonly now offered in UK workplaces. Under DC, final pension values depend on how much is saved and how well those savings are invested. This contrasts with defined benefit (DB) schemes, which promise a guaranteed lifelong income based on salary and length of service—now a rarity outside the public sector.
The state pension remains independent of personal pension arrangements and is adjusted yearly in accordance with the ‘triple lock’. This safeguard guarantees the state pension rises each April by whichever is highest: inflation, average wage growth or 2.5%. However, the Office for Budget Responsibility has warned that the triple lock could add £15.5 billion annually to public spending by the end of the decade.
Industry experts have urged the Government to take bold action. Kate Smith of pension provider Aegon has called for significant increases to automatic enrolment contributions, at least for those on middle and higher incomes. She also emphasised the need to address pension gaps among women, ethnic minorities, and the self-employed—groups often excluded from automatic pensions for reasons including age, earnings level, or employment type.
Charities such as Age UK stress the importance of timely reforms to prevent pensioner hardship. Caroline Abrahams, charity director, stated: “We urgently need changes to allow more people to build decent savings for retirement. The current patchwork system leaves too many struggling to make ends meet.”
As the Government embarks on these reviews and reforms, experts and advocates will be watching closely to see whether proposed changes can address deep-seated inequalities and ensure that every worker can look forward to a financially secure future in retirement.