Let’s talk about building the fair and sustainable State Pension of the future

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A great deal has changed since the State Pension was first established in 1948. More of us are living longer, and how, when and where we work looks very different. We need to make sure that the State Pension system remains adequate for those that need it, as well as fair and sustainable for those who fund it. Policy makers are facing some crucial decisions. What does a fair and sustainable State Pension look like? And how can we protect those at risk of poverty as the State Pension age rises?

To help answer these questions, we conducted a year-long study with King’s College London into public understanding and expectations of the system. It revealed widespread misconceptions on key issues, such as where people’s National Insurance contributions go, and how they can qualify for the full State Pension. Drawing on the public’s own views, expert stakeholders, policy makers and opinion polling we develop a range of recommendations:
 

Building trust, engagement and understanding

We think an important first step is to build trust and understanding by involving the public in decisions about the State Pension. This can be done with the help of an independent body and sufficient public engagement to scrutinise policy proposals that go beyond the term of any one government.

Simplicity, clarity andRead Our Full Report inclusivity are also key. We believe the State Pension should remain available to those with National Insurance contributions and be linked to average life expectancy. But it should also allow for additional support through the social security system to help people cope with major life changes.

Ensuring a reliable safety net for the vulnerable

Critically, we feel the system must be built to help the people who need it the most. This can be done by promoting uptake of Pension Credit for those who are eligible and addressing the stark cliff edge between the working age and State Pension benefit systems. One approach could be a bridging benefit available to anyone at risk of poverty one year before State Pension age, and adults with a terminal illness being allowed to access a portion of their State Pension early.
 

Creating fulfilling lifelong career opportunities

As working later in life becomes more common, we must also ensure better, more flexible jobs for people of all ages. To create fulfilling opportunities throughout people’s careers, we suggest establishing a public fund to support employers in promoting lifelong learning, providing mid-life career and skills assessments and improving workplace health.
 

Promoting saving and balanced funding

Encouraging those who can to save more is also critical. One solution is to expand the Automatic Enrolment (AE) system, which automatically signs people up for workplace pension schemes, providing savings alongside their State Pension when they reach retirement.

Finally, it is important to fund any changes in a balanced way. If the State Pension age is increased, for example, a portion of the money saved by government should be reinvested in creating better job opportunities and supporting those who may struggle financially during the transition.
 

Let’s drive positive change

Hearing from the public, it’s clear there is real appetite for change to ensure the State Pension system continues to serve its purpose effectively and fairly. We look forward to supporting policymakers on reforms which will make a real difference and safeguard its long-term future.

Read Our Full Report

Key findings

The first report of this project will talk about initial findings from the exploratory phase. In summary, we will see that:

• If we only look at the average values of key indicators, we fail to recognise the diversity of circumstances experienced by UK households
• Many households are experiencing significant affordability challenges in the present day that will affect their ability to defer income into retirement savings
• Labour is only one source of household income – housing benefit in particular is an important source of income for many households
• Even taking this into account, many people aren’t currently meeting key income benchmarks, and many are below key benchmarks of retirement income during their working lives
• It can pay to prioritise saving towards a housing purchase – provided this is affordable
• Priorities change over the life-course, and any metric of retirement savings adequacy will need to be adjusted from time to take account of the more significant changes.

These findings will shape our modelling work in phase 2 of the project, which will seek to understand:

• For any given group of workers, what are the near- and long-term trade-offs involved in assigning each marginal pound of earnings to a pension plan, rather than other potential uses?
• Which groups of workers might be seen as over- and under-saving for retirement?
• To what extent can scheme defaults meet the needs of different groups of savers?
• What does this tell us about the kinds of interventions that may be needed at different life stages or at key milestones?

Download the Report