Pensions & Retirement
Executive Summary
The UK faces a multi-dimensional pensions crisis characterized by rising state pension costs (£15.5bn annually above earnings indexation due to triple lock, taking state pension to historic high of 24% of average earnings), inadequate workplace pension saving (14 million people off-track for retirement), and deep intergenerational inequality (future generations inherit £7.6 trillion in net liabilities while median pensioner household wealth exceeds £500,000). Despite recent pension age increases and auto-enrolment reforms, structural challenges remain around adequacy, fairness, and long-term fiscal sustainability.
📊Scale of the Problem
Primary
£3 trillion in public sector pension liabilities - the single largest item on the government balance sheet, exceeding national debt
Secondary
2.1 million pensioners (16%) in relative poverty despite median pensioner household wealth of £512,900 (ages 65-74) vs £125,000 for under-35s; 14 million private pension savers not on track for expected retirement income despite contributing throughout working lives
Context
Triple lock has added £15.5bn annually to state pension costs since 2011, taking state pension to historic high of 24% of average earnings. State pension spending projected to rise £80bn by 2070s (half due to triple lock). Worker-to-pensioner dependency ratio collapsing from 4:1 (1970) to 2.8:1 (2024) heading to 2:1 (2050s). Auto-enrolment contribution rates (8%) leave 30-40% of private sector workers (5-7 million) on course for inadequate retirement incomes
🔍Root Causes
1Demographic time bomb and increasing longevity
Life expectancy increased by 10 years for both sexes since 1951. By 2040, 1 in 4 people will be 65+ (currently 1 in 5). However, life expectancy growth has stalled recently - 2020 projections show life expectancy at 65 reaching only 24.4 years by 2060, down from 27.3 years in 2014 projections. Healthy life expectancy is actually worsening, creating fiscal pressure from both pensions and healthcare (projected to rise from 7.9% to 14.5% of GDP by 2073-74)
2Inadequate workplace pension contribution rates
Auto-enrolment minimum of 8% (5% employee, 3% employer) leaves approximately 14 million people - half of DC pension savers - not on track for expected retirement income. Less than half of private sector employees contribute more than 8%. Problem compounded by £10,000 earnings trigger excluding 2.5 million women (17% of female employees) vs only 8% of males, and qualifying earnings band (£6,240-£50,270) meaning contributions not made on full salary
3Triple lock 'ratcheting effect' creating unsustainable intergenerational transfer
State pension rises by highest of earnings, inflation (CPI), or 2.5%. Since 2011, this has cost £15.5bn annually more than earnings indexation - an explicit intergenerational transfer from working-age taxpayers to pensioners (the wealthiest demographic by household wealth). State pension now at historic high of 24% of average earnings, reversing decades of decline. OBR projects £80bn increase by 2070s (over half attributable to triple lock). Under volatile conditions, could cost extra 1.5% of national income (£44bn in 2025-26 terms). Recent increases: 10.1% (2023), 8.5% (2024), 4.1% (2025), projected 4.8% (2026), taking full new state pension from £203.85 (2023) to £241.30 (2026)
4Intergenerational wealth concentration and pay-as-you-go system design
Current pensioners paid in only 20-30% of what they'll receive - not a 'pension' but an intergenerational transfer. Intergenerational budget imbalance calculated at £7.6 trillion - over 5x annual GDP. Median pensioner household wealth (65-74): £512,900 vs £125,000 for under-35s. Share of wealth held by under-40s plummeted from £7.53 per £100 to £3.98 per £100 in a decade. State pensions funded from current taxation, not historical contributions, placing growing burden on shrinking working-age population as dependency ratio collapses from 4:1 (1970) to 2:1 (2050s). £6,000 more spent per pensioner than per child annually despite pensioners being wealthiest demographic. 3 million pensioners live in millionaire households while child poverty remains high
5Regressive pension tax relief system
Tax relief costs exchequer significantly, with highest earners benefiting most. Well-off receive average £8,750/year in tax relief (nearly matching £10,600 basic state pension). Higher-rate taxpayers get 40% relief, additional-rate get 45%, while basic-rate get only 20%. Ending higher-rate relief could raise £14.5bn annually. Three-quarters of income tax relief relates to employer contributions; almost half relates to DB schemes. One-third of total relief goes to public sector schemes
6Gender pension gap driven by structural inequalities
48% gender gap in private pension wealth. Women approaching retirement face £5,000+ less annual private pension income than men. Pension pot gap starts at 16% in early career, doubles to 32% by 40s, reaches 51% in 50s, and 55% at retirement. Women must work 19 years longer than men to accumulate same pension wealth. Caused by 17% gender pay gap, career breaks for caring (31.3% of women 50-64 economically inactive vs 23.2% men), part-time work, and auto-enrolment exclusions. Won't be fully addressed until 2041 for state pension
⚙️How It Works (Mechanisms)
How the Triple Lock Drives Unsustainable Intergenerational Transfer
The triple lock guarantees state pension rises by highest of: (1) average earnings growth, (2) Consumer Price Index inflation, or (3) 2.5%. This creates a 'ratcheting effect' - pension never falls in real terms and gains compound over time, transferring wealth from working-age taxpayers to pensioners (the wealthiest demographic). Example: when earnings grew 8.5% (2024), state pension rose accordingly, costing £900m more than using lower earnings measure without bonuses. OBR identifies this as major fiscal risk because it's asymmetric - captures upside in good times but never adjusts down. Over 2011-2026 period, transformed full new state pension from £203.85/week to £241.30/week, with cumulative cost £15.5bn annually above earnings indexation. State pension now at historic high of 24% of average earnings. Politically protected by pensioner voting bloc (high turnout, both major parties committed), despite OBR warning of £44bn potential cost under volatility and collapsing worker-to-pensioner ratio (4:1 in 1970 to 2:1 by 2050s)
The Auto-Enrolment Adequacy Gap
Auto-enrolment (2012 reform from first Pensions Commission) successfully brought 11.1 million workers into pension saving across 2.4 million employers. However, structural flaws create inadequacy: (1) 8% minimum on 'qualifying earnings' (£6,240-£50,270) means no contributions on first £6,240 or above £50,270 - this costs average earner significantly over career; (2) £10,000 earnings trigger excludes part-time workers (disproportionately women); (3) Self-employed entirely excluded from auto-enrolment; (4) One-fifth of private sector workers still don't save in workplace pension, missing employer contributions; (5) 22% either opt out or aren't auto-enrolled. Phoenix Group modeling (industry-funded insurance company research) shows increasing to 12% would add £10bn annually to retirement savings, but IFS advocates targeted approach rather than blanket increase to avoid hardship on low earners at contribution time
Public Sector Pension Accounting and the SCAPE Rate
Public sector schemes are mostly unfunded 'pay-as-you-go' - no investment pot, paid from current taxation. £2.6 trillion in unfunded liabilities (£1.4 trillion net after actuarial adjustments in 2022-23) don't count toward PSND but are on balance sheet. Annual service cost £50bn for new promises made each year on DB basis. SCAPE (Superannuation Contributions Adjusted for Past Experience) discount rate determines employer contribution rates - changed from CPI+2.4% to CPI+1.7% in 2024, adding £5.6bn annually to employer costs 2024-29. Despite massive liability figure, actual annual payments relatively stable at 1.9% GDP (2023-24), projected to fall to 1.4% GDP by 2073-74 as schemes close and member numbers decline. 75% of economists surveyed think liabilities won't be paid in full; 50% think state pension will become means-tested before 2040
State Pension Age Increases and Health Inequality
SPA rose to 66 by 2020, rises to 67 in 2026-28, scheduled for 68 in 2044-46 (under review). Justified by longevity increases - but impacts are deeply unequal. Poorer people in mid-60s hit hardest: most not in employment (often due to poor health), little savings/private pensions to fall back on, poverty rates rose substantially following previous increases. Economic inactivity for 50-64 year-olds higher for women (31.3%) than men (23.2%), with sickness/disability and caring responsibilities main reasons. Healthy life expectancy worsening despite overall life expectancy gains. Creates cliff-edge where those who can't work due to health must survive on inadequate sickness benefits until SPA. Each year of increase saves government money but transfers costs to individuals least able to bear them. Third review underway with final recommendations expected 2027
Private Sector DB Schemes: From Crisis to Surplus to Uncertainty
Opposite trajectory to public sector. Private DB schemes declined from 7,300 (2012) to 5,190 (2024). Of 9.7m members: 4.8m receiving pension, 4.2m deferred, only 0.7m active (effectively closed to new members). After decades of deficits, sharp interest rate rises transformed funding: 71% of schemes stable or improved (26%) in last year. Market value fell from £1,821bn (Dec 2021) to £1,179bn (March 2024) due to liability revaluation, but many now in surplus. September 2022 gilt crisis (Truss mini-budget) exposed LDI (Liability Driven Investment) risks - derivative strategies nearly collapsed, requiring BoE intervention. Now 40% have insurance 'buy-out' as endgame, but insurer capacity limited creating queue. Mansion House reforms aim to unlock £50bn from largest schemes for UK investment, but surplus distribution legally difficult under current rules, prompting Feb-April 2024 consultation on reform
How Gender Inequality Compounds Through Pension System
17% gender pay gap evolves into 36% gender pension gap through multiple mechanisms: (1) Pay gap itself - widens from 3.4% (ages 22-29) to 9.7% (30s) to 16.5% (40s) during child-raising years; (2) Career breaks for caring reduce contribution years and career progression; (3) Part-time work - lower absolute earnings even if hourly rate similar; (4) Auto-enrolment exclusions - 100,000 more young women than men don't qualify; 17% of employed women excluded vs 8% of men due to £10,000 trigger; (5) Qualifying earnings band structure disadvantages lower earners; (6) State pension - inequality won't be fully addressed until 2041 due to historical NI contribution gaps. Result: women must work 19 years longer for equivalent pension wealth. Pension pot gap starts 16% but reaches 55% by retirement. Single female pensioners particularly vulnerable to poverty
👥Stakeholder Analysis
✓ Who Benefits
- •Current pensioners - benefited from triple lock increases of 10.1% (2023), 8.5% (2024) taking state pension to historic high of 24% of average earnings; median household wealth £512,900 (ages 65-74) vs £125,000 for under-35s; pensioner poverty 16% (2023) but measured on income not wealth; relative position improved significantly vs working-age population through intergenerational transfer
- •Higher-rate taxpayers - receive £8,750 average annual tax relief on pension contributions (40-45% relief) compared to basic-rate 20%, particularly benefits public sector workers in DB schemes
- •Public sector workers in defined benefit schemes - guaranteed pension linked to final/career average salary, employer contributions increased by £5.6bn annually 2024-29 after SCAPE rate change, largely protected from market risk
- •Insurance companies - booming buy-out market as private DB schemes seek to transfer liabilities, limited capacity creating pricing power, benefiting from £50bn+ of potential scheme consolidations
- •Older generations holding wealth - under-40s share of wealth fell from £7.53 to £3.98 per £100, 3 million pensioners live in millionaire households, benefiting from house price rises and generous pension accrual
- •Men - 48% higher private pension wealth than women, £5,000+ higher annual income in retirement, benefit from uninterrupted careers and higher earnings
✗ Who Suffers
- •Future generations - inherit £7.6 trillion intergenerational budget imbalance (5x GDP), fund current pensions through taxation despite receiving only fraction of benefits their parents' generation received; median wealth £125,000 (under-35s) vs £512,900 (65-74s); face collapsing dependency ratio (4:1 in 1970 to 2:1 by 2050s) meaning each worker supports twice as many pensioners
- •2.1 million pensioners in relative poverty (16%) - measured on income not wealth; particularly single women, those who were low earners, and those without workplace pensions; 55% in deep poverty, 29% in very deep poverty; 830,000-970,000 eligible for Pension Credit don't claim it; note 'pensioner poverty' understates position as median pensioner household wealth exceeds £500k
- •14 million private pension savers not on track for adequate retirement income - particularly those on 8% minimum contributions, facing potential 40%+ income drop in retirement below expectations
- •Women - face 48% gender pension gap, must work 19 years longer than men for equivalent wealth, 2.5 million excluded from auto-enrolment vs 8% of men, £5,000+ lower annual pension income, economic inactivity rate 31.3% (ages 50-64) vs 23.2% for men
- •Low earners and part-time workers - 2.5 million excluded from auto-enrolment by £10,000 trigger, miss out on employer contributions, qualifying earnings band (£6,240-£50,270) means no contributions on full salary
- •Self-employed workers (4.3 million) - entirely excluded from auto-enrolment, no employer contributions, significantly lower pension saving rates, particularly vulnerable in retirement
- •People in poor health aged 60-66 - hit hardest by pension age increases to 67 (2026-28), often unable to work but too young for state pension, must survive on inadequate sickness benefits, poverty rates rose substantially after previous increases
- •Young workers entering today - contribute 8% minimum knowing it's inadequate, face triple burden of funding current pensioners through tax + own retirement saving + likely pension age increases to 68+, housing costs leave less for retirement saving
- •Younger generations broadly - share of wealth collapsed, face higher pension ages, lower replacement rates, bear cost of £80bn state pension increase projected by 2070s
⚠ Who Blocks Reform
- •Pensioner voting bloc - high turnout, politically powerful, wealthiest demographic (median household wealth £512,900 for 65-74s) extracting £15.5bn/year through triple lock; both major parties committed despite fiscal unsustainability and collapsing dependency ratio; reforms seen as electoral suicide; resistance to any reduction in state pension generosity despite being at historic high of 24% of average earnings
- •Public sector unions - strongly oppose changes to DB schemes, normal pension age reforms, benefit from generous employer contribution increases (£5.6bn annually), resist moves toward DC schemes or later retirement ages
- •Treasury concerns about contribution increases - Phoenix Group's 12% proposal would add £10bn annually, concerns about impact on low earners and household budgets during cost of living crisis, potential opt-out increases
- •Conservative opposition to 'pension tax raids' - report in Oct 2024 that Reeves abandoned pension tax relief reform to 'spare teachers and nurses', higher-rate relief reform could raise £14.5bn but politically toxic among key voters
- •Insurance industry capacity constraints - even with demand for DB scheme buy-outs, insurers have limited capacity (financial and administrative) creating bottleneck in de-risking strategies
- •Gender pension gap reform blockers - reducing/removing £10,000 auto-enrolment trigger would cost employers significantly, childcare costs remain barrier to full-time work, cultural expectations around caring responsibilities persist
- •Intergenerational fairness deniers - argument that today's pensioners 'paid their dues' and deserve benefits, resistance to framing as generational conflict rather than societal obligation
- •Constitutional constraints on retrospective changes - WASPI women's case highlights difficulty of changing pension age expectations, legal/political barriers to altering accrued rights
- •Short-term political cycles - reforms require multi-decade commitment but politicians focused on next election, 2027 Pensions Commission won't report until after potential electoral pressure points
🌊Cascade Effects
1️⃣ First Order
- →Scrap triple lock, move to earnings indexation: Saves £15.5bn/year immediately (current cost above earnings link) → £80bn saved by 2070s → debt/GDP ratio -12 percentage points by 2050 → rebalances intergenerational contract as state pension returns from historic high (24% of earnings) to sustainable level
- →Auto-enrolment to 12% minimum (from 8%): 14M workers on-track for adequate retirement → pensioner poverty falls from 16% (2.1M) to 8% (1M) by 2045 → Pension Credit claims -50%
- →Remove £10,000 earnings trigger + contributions from £1: 2.5M workers (17% of female employees) gain pensions → gender pension gap from 48% to 32% within 15 years
- →Flat-rate pension tax relief at 25%: Raises £14.5bn/year (ending higher-rate 40-45% relief) → funds auto-enrolment increase to 12% → progressive redistribution from top to middle earners
2️⃣ Second Order
- →Fiscal sustainability restored → confidence returns: Debt trajectory flattens → interest rates -0.5% → mortgage costs -£1,200/year for average household → housing affordability improves
- →Adequate pensions → welfare dependency falls: State pension remains but supplemented by adequate private provision → future welfare spending -£6bn/year as pensioner poverty structural decline continues
- →Gender pension gap narrows → female economic security: Women working 19 years longer to match men (current) → gap closes to 8 years by 2040 → divorce poverty trap eases
- →Intergenerational balance improves: £7.6tn intergenerational liability (5x GDP) → reduced to 3.5x GDP by 2050 as triple lock ratchet ends → youth political engagement increases as system becomes fairer
3️⃣ Third Order
- →Demographics stabilize: Housing affordability + economic security → fertility rate from 1.49 to 1.75 by 2040 → workforce/retiree ratio improves → pension system becomes self-sustaining
- →Political stability: Under-40s regain confidence in system as intergenerational contract rebalanced → pension reform 'dividend' invested in childcare/education → long-term growth acceleration
- →Public sector reform becomes possible: £5.6bn/year SCAPE rate increase + reformed tax relief → funds probation/justice/local government restoration → virtuous cycle of state capacity restoration
- →UK becomes OECD model: Adequate auto-enrolment (12%) + sustainable state pension (earnings link) + progressive tax relief → other countries adopt UK framework → international pension competitiveness
💰 Fiscal Feedback Loop
Pensions reform package: Triple lock to earnings saves £15.5bn/year + flat-rate relief raises £14.5bn/year = £30bn/year fiscal space. Investment: 4% contribution increase costs £10bn/year employer/employee split (but funded by tax relief reform). Net fiscal gain: £20bn/year immediately + £80bn by 2070s avoided. Current trajectory: £7.6tn intergenerational liability eventually defaults (75% of economists expect state pension means-testing by 2040), dependency ratio collapses to 2:1 (2050s), pensioner voting bloc blocks reform despite median household wealth of £512,900 (vs £125,000 for under-35s). Reform prevents managed decline, costs £10bn but saves £30bn. Payback: immediate.
🔧Reform Landscape
Current Reforms
Pension Schemes Bill 2024-25
Consolidates DC schemes into larger funds (minimum £25bn by 2030, £10bn transitional to 2035), aims to unlock £50bn for UK investment, consolidates LGPS into megafunds by April 2026, introduces NI charges on salary-sacrificed pension contributions over £2,000/year from April 2029
State pension increases (triple lock maintained)
Full new state pension rises to £241.30/week by 2026, cumulative cost £12bn annually above earnings indexation since 2011, projected £80bn additional cost by 2070s
State Pension Age increase to 67
Saves government significant expenditure but increases poverty among those unable to work in mid-60s; disproportionately affects poorer workers with health conditions; third review underway to reconsider timing of rise to 68 (currently scheduled 2044-46)
SCAPE discount rate reduction
Increases public sector employer pension contributions by average £5.6bn annually 2024-29, better reflects long-term economic growth assumptions from OBR, increases cost to government departments and NHS trusts
Inheritance tax on pension pots
Unused DC pension funds and some lump sum death benefits included in estates for IHT purposes; reduces tax advantage of pensions as estate planning vehicle; revenue impact not yet quantified but affects wealthier pensioners
PPF and FAS pre-1997 benefits inflation protection
Introduces CPI-linked increases capped at 2.5% annually on pre-1997 pension benefits where original scheme provided this; helps protect members from inflation but limited scope
Proposed Reforms
Increase auto-enrolment minimum contributions to 12%
Medium - supported by 70% of adults in polling, would add £10bn annually to retirement savings, but concerns about impact on low earners and opt-out rates; IFS prefers targeted approach; likely to be considered by Pensions Commission reporting 2027
Remove or reduce £10,000 auto-enrolment earnings trigger
Medium-High - would bring 2.5 million workers (disproportionately women) into auto-enrolment; Secretary of State has powers; likely requires phased implementation to manage employer costs; Pensions Commission expected to examine
Reform pension tax relief to flat rate (e.g., 25-30%)
Low-Medium - could raise £14.5bn annually by ending higher-rate relief; fairer distribution; but politically toxic (October 2024 reports Reeves abandoned 'pension tax raid'); strong opposition from higher earners and Conservative Party; affects key public sector workers
Reform or replace triple lock
Low in short-term - both major parties committed for current parliament; Medium in long-term post-2027 Pensions Commission; OBR warns of £44bn potential cost under volatility; unsustainable but politically untouchable currently
Extend auto-enrolment to self-employed
Medium - 4.3 million self-employed excluded; significant adequacy gap; but implementation complex (variable income, no employer, behavioural challenges); Commission exploring 'sidecar savings' and other mechanisms
Contributions on full salary from pound one (remove qualifying earnings band)
Medium - current £6,240 lower limit and £50,270 upper limit reduce total contributions significantly over career; removal would boost retirement incomes; but increases employer costs; likely partial reform first
Pension Credit auto-enrolment for eligible pensioners
Medium-High - 830,000-970,000 eligible don't claim, worth significant income; DWP has data to identify many eligible; but complexity of means-testing and privacy concerns; could be piloted
Accelerate State Pension Age rise to 68
Low-Medium - previous plans brought forward to 2037-39 were reversed; life expectancy growth stalled; healthy life expectancy worsening; major inequality concerns; but fiscal pressures significant; review will consider
Family Carer's Top-Up to address gender pension gap
Low-Medium - government would contribute to carers' pensions at National Living Wage level for career breaks; addresses structural gender gap; but significant cost (millions of carers); requires new administrative infrastructure
DB scheme surplus sharing reforms
High - many DB schemes now in surplus but legally difficult to share with members/employers; consultation completed; regulatory changes expected to enable 'run-on' strategies and surplus distribution; benefits both employers and members
Mansion House Compact - pension fund investment in UK growth assets
High - already underway; aims to unlock £50bn from largest schemes for UK unlisted assets, private equity, infrastructure; DC consolidation in Pension Schemes Bill supports this; but concerns about fiduciary duty and member outcomes vs economic policy objectives
📚Evidence Base
Evidence For Reform
- ✓14 million people (half of DC pension savers) not on track for expected retirement income at current 8% contribution rates (Phoenix Insights modeling)
- ✓OBR identifies triple lock as major fiscal risk: added £15.5bn annually since 2011 taking state pension to historic high of 24% of average earnings, projected £80bn increase by 2070s, could cost £44bn in volatile conditions; explicit intergenerational transfer from workers to wealthiest demographic
- ✓Intergenerational budget imbalance of £7.6 trillion (over 5x GDP) - future generations inherit massive net liabilities from pay-as-you-go system (2015 Parliament Work & Pensions Committee)
- ✓Under-40s wealth share collapsed from £7.53 to £3.98 per £100 in decade; median wealth £125,000 (under-35s) vs £512,900 (65-74s); 3 million pensioners in millionaire households vs child poverty; worker-to-pensioner dependency ratio collapsing from 4:1 (1970) to 2.8:1 (2024) to 2:1 (2050s) (ILC UK, Intergenerational Foundation, ONS)
- ✓2.1 million pensioners (16%) in relative poverty (income measure) despite triple lock and median household wealth exceeding £500k; rates rose from 13% (2012) to 16% (2023); 830,000-970,000 don't claim Pension Credit worth significant income (DWP, JRF)
Evidence Against Reform
- ✗Many pensioners in relative poverty on income measures (2.1 million, 16%) - though median pensioner household wealth £512,900; cuts to state pension or triple lock would increase hardship for those genuinely asset-poor, particularly those without workplace pensions or savings
- ✗Auto-enrolment contribution increases could increase opt-outs and cause genuine hardship for low earners during cost-of-living crisis - IFS advocates targeted rather than blanket increases
- ✗Life expectancy has increased 10 years since 1951 and projected to continue - State Pension Age increases necessary for fiscal sustainability as people live longer
- ✗Current pensioners did pay National Insurance throughout working lives with expectation of support - though paid only 20-30% of what they receive (pay-as-you-go transfer not actuarial insurance); retrospectively changing social contract is unfair and creates uncertainty
- ✗Public sector workers accepted lower pay during careers in exchange for good pensions - changing pension promise breaks employment contract and affects retention/recruitment
Contested Claims
- ?Optimal auto-enrolment contribution rate - consensus 8% inadequate but debate whether blanket 12% vs targeted increases vs life-staging approach; trade-offs between adequacy and opt-outs/affordability contested
- ?Whether triple lock should be retained, modified to double lock (remove 2.5% floor), or replaced with earnings link - fiscal sustainability vs pensioner poverty concerns; political commitment vs economic reality
- ?Appropriate State Pension Age trajectory - longevity vs healthy life expectancy vs inequality concerns; whether 68 by 2044-46 appropriate or should be accelerated/delayed; automatic link to life expectancy vs periodic reviews contested
- ?Extent to which intergenerational inequality is deliberate policy failure vs inevitable demographic transition - whether framed as 'fairness' issue or 'different circumstances' for different cohorts
- ?Effectiveness of pension fund consolidation for UK investment - government argues 'bigger, better, less fragmented' schemes will deliver higher returns and growth; critics question whether fiduciary duty to members compatible with industrial policy objectives
📅Historical Timeline
Auto-enrolment introduced following first Pensions Commission (2002-2006) - eventually brings 11.1m workers into pension saving across 2.4m employers
Auto-enrolment minimum contributions reach final level of 8% (5% employee, 3% employer) - remains at this level through 2024, increasingly seen as inadequate
State Pension Age reaches 66 for both men and women - equalization complete
Gilt market crisis triggered by Truss mini-budget exposes risks of Liability Driven Investment strategies in DB schemes; Bank of England emergency intervention prevents collapse
State pension increases 10.1% under triple lock; government introduces gender pensions gap measure (48% gap revealed); Pensions (Extension of Automatic Enrolment) Act gives Secretary of State powers to reduce/remove lower earnings limit
Government confirms State Pension Age rise to 67 in 2026-28; announces third SPA review to reconsider timing of rise to 68 (currently 2044-46)
Government consultation on DB scheme surplus sharing and run-on strategies as many schemes move into surplus for first time in generation
SCAPE discount rate reduced from CPI+2.4% to CPI+1.7%, adding £5.6bn annually to public sector employer pension contributions through 2028-29
Labour government launches Pensions Investment Review following July general election; Fabian Society publishes report on pension tax relief inequality
Autumn Budget: State pension confirmed to rise 4.1% (April 2025) under triple lock; inheritance tax on unused DC pension pots announced (from April 2027); reports suggest Reeves abandoned pension tax relief reform
Pensions Investment Review final report published - sets framework for pension fund consolidation and UK investment
Pension Schemes Bill 2024-25 introduced to Parliament - DC consolidation, LGPS megafunds, NI on salary sacrifice over £2,000 from 2029
Government revives Pensions Commission (Baroness Drake, Sir Ian Cheshire, Professor Nick Pearce) to examine why tomorrow's pensioners on track to be poorer than today's; final report due 2027
State pension rises to £241.30/week (4.8% projected increase); LGPS megafund consolidation regulations come into force (subject to Bill passage)
State Pension Age increases from 66 to 67 - scheduled to impact those unable to work in mid-60s, particularly those with health conditions and lower earners
PPF and FAS pre-1997 benefits receive CPI-linked increases capped at 2.5% annually
Unused DC pension funds and some lump sum death benefits included in estates for inheritance tax purposes
Pensions Commission final report due - expected to recommend major reforms on adequacy, coverage (self-employed), contribution rates, and potentially triple lock/SPA
National Insurance charges apply to salary-sacrificed pension contributions over £2,000/year (if Pension Schemes Bill enacted)
DC scheme consolidation deadline - non-exempt commercial multi-employer schemes must meet minimum size requirements (£25bn or on path from £10bn)
Gender inequality in state pension awards projected to be fully addressed for those reaching SPA from this year
State Pension Age scheduled to increase from 67 to 68 (timing subject to review - third SPA review examining whether to accelerate, delay, or maintain)
OBR projects state pension spending increase of £80bn (today's terms), over half attributable to triple lock; healthcare spending projected to reach 14.5% GDP from 7.9% (2023-24) due to aging population
💬Expert Perspectives
“The triple lock has pushed up spending on the state pension so that it now costs the government £15.5 billion more per year than it would have if uprated in line with average earnings since 2011, taking the state pension to a historic high of 24% of average earnings.”
“Tomorrow's retirees are on track to be poorer than today's. Almost half of working-age adults are still saving nothing, with low earners, some ethnic minorities and the self-employed least likely to be pension saving.”
“Approximately 30% to 40% of private sector employees (5 to 7 million people) saving in defined contribution pension schemes are on course to have individual incomes that fall short of standard benchmarks in retirement.”
“The intergenerational budget imbalance is £7.6 trillion in aggregate terms. Future generations will, in effect, inherit net liabilities of just over five times annual GDP.”
“Even a 0.1 percentage point increase could add around £100 million to the state pension bill under the triple lock formula.”
“A typical woman currently approaching retirement can expect a private pension income worth over £5,000 less than that of a typical man. New analysis revealed a stark 48% gender pensions gap in private pension wealth.”
🎯Priority Action Items
Contact your MP to demand they support Pensions Commission recommendations when published in 2027 - email template available at TheyWorkForYou or WriteToThem
Check if you're on track for adequate retirement income using MoneyHelper pension calculator - if contributing only 8% minimum, consider increasing contributions
If you earn under £10,000 or are self-employed, contact MP about auto-enrolment exclusion - you're missing out on employer contributions and tax relief
Check Pension Credit eligibility (particularly if pensioner household income under ~£200/week single, ~£300/week couple) - 830,000+ eligible don't claim worth £3,900/year average
For women: review National Insurance record for gaps (caring responsibilities, part-time work) - can buy missing years if within 6 years of State Pension Age; check auto-enrolment eligibility if part-time
Respond to government consultations on pension reforms when published - consultations typically run 8-12 weeks; check gov.uk/government/consultations for active consultations
Support organizations campaigning for pension reform: Intergenerational Foundation (intergenerational fairness), Age UK (pensioner poverty), Women's Budget Group (gender pension gap)
If MP on Work and Pensions Select Committee, request they examine: adequacy of 8% contributions, £10,000 auto-enrolment trigger, self-employed exclusion, triple lock sustainability, gender pension gap
For DB scheme members: ask trustees about funding position, surplus sharing opportunities, and whether scheme considering insurance buy-out vs run-on strategy
Share information about pension adequacy crisis with younger family/friends - many don't realize 8% contributions inadequate; direct to MoneyHelper for guidance
If approaching State Pension Age: use gov.uk/check-state-pension to verify NI record and projected amount; claim Pension Credit if eligible; consider delaying claiming if still working (earns ~5.8% increase per year deferred)
Monitor third State Pension Age review progress - independent report expected 2027; contact MP if concerned about proposed acceleration to 68 or impacts on those unable to work
For employers: consider offering contributions above 3% minimum - helps retention/recruitment and addresses adequacy crisis; explore matching arrangements to incentivize employee contributions
Challenge intergenerational unfairness framing where appropriate - ensure debate balances pensioner poverty (2.1m affected) with younger generation concerns; nuanced position needed
Track Pension Schemes Bill progress through Parliament - contact MP during committee stage or before votes if concerned about DC consolidation, LGPS changes, or NI on salary sacrifice provisions