From Evidence to Action: The Pensions Commission’s Next Challenge

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In July 2025, the Government launched a Second Pensions Commission – an independent body tasked with assessing the long-term future of our pensions system and making recommendations for reforms to improve adequacy, fairness and sustainability.

This week, the Commission completed the first of those tasks with the publication of their Interim Report, a tour de force data-driven assessment of what is working and not working in our pension system.

What did the Second Pension Commission Interim Report find?

• The UK pensions system has come a long way in the past two decades. Since the early 2000s, pensioner poverty has fallen significantly, and the gap between pensioner and working-age incomes has largely closed. Automatic enrolment has brought millions into saving, with around nine in ten eligible employees now contributing to a workplace pension.
• But many people are still not saving enough for retirement. At least four in ten working-age people are not on track to meet reasonable retirement income targets.

Why aren’t people saving enough?

1. One problem is savings rates. On average, contribution rates into workplace pensions remain at the minimum default rate of 8% set almost 20 years ago by the first Pension Commission, and the evidence is clear that this will not translate into adequate retirement income for many.
2. Another problem is the coverage of our automatic enrolment system. Workers on low incomes are excluded, and the upper earnings limit also affects higher paid workers. The self-employed are a diverse group in terms of wealth and incomes, but without a default nudge equivalent to AE, a shockingly low 4% of people who rely solely on self-employment for income are saving into a pension.
3. The third reason is different labour market experiences. Women, people with caring responsibilities, people with disabilities and some ethnic minority groups are significantly under-pensioned, and much of this related to their different experiences of employment. One brutally clear example of this is a brutal 75% gender pension gap between men and women’s DC pension savings, driven principally by different trajectories in employment and contributing to the UK’s gender pension gap being the second highest across all OECD countries.
4. Fourthly, the report highlights the need for more of us to work for longer if we are to save enough for our retirements. One striking piece of analysis in the report shows how, thanks principally to the effect of investment returns, a median earner retiring at 67 would have little more than half the pension pot if they retired at 57. The report is notably strong on the importance of broader public policy supporting people to work for longer, stressing how working at older ages is crucial not just for individuals’ financial security, but the wider economy.
5. The report also touches on housing and social care, noting how the share of households renting privately is increasing, from 4% in 2003-4 to 10% in 2024-5, likely to mean a greater proportion of future retirees will arrive at retirement with significant ongoing housing costs. And on social care, it notes that 1‑in‑7 people at the age of 65 are expected to incur lifetime care costs of over £100,000 on average, a figure that is significantly greater than the pensions wealth or savings many will expect to have at this age.
6. And finally, the report stresses the importance of investment returns as the principal driver of overall pot size at retirement, and notes how varying investment returns can compound to very different outcomes for savers.

What does the report have to say on decumulation?

• Here the report recognises that available evidence of decumulation choices and their impact is inevitably limited so far, but presents a range of data and qualitative research that highlights how many people are using the pension pots for something other than a retirement income: 61% of people aged 55-75 who had accessed a pension said they had done so before retiring from paid work, with the most frequent reason cited being to reduce their working hours.
• Some modelling is also presented to suggest that some people are on track for overspending early in retirement and outliving their private pension savings, with huge implications for their quality of life and necessary state support. The report is clearly in favour of greater use of mechanisms to reduce this longevity risk for individuals, and make taking retirement income decisions a much safer prospect for people who cannot afford financial advice.

So what comes next?

Speaking at the interim report launch, the Pensions Minister set two very clear priorities for their work: devise a plan to increase savings rates; and recommend a solution to increase pension saving among the self-employed.

As part of this, the Commissioners are clear that it will be critical to devise an approach that is phased and affordable, intergenerationally fair, and that helps to address persistent gaps linked to gender, caring roles and health.

But the Commissioners are clearly also interested in some other priorities alongside this, most notably the impossible challenge of handing decumulation in a DC world, and the way in which pensions freedoms have increased flexibility, but also complexity and risk. Many people are now making high-stakes financial decisions with limited support or protection, and so they will undoubtedly also prioritise developing recommendations on how to improve support and safeguards when people access their pensions.

How bold will the Commission’s final recommendations be?

My sense of the Commissioners is that they have real appetite to be bold in what they propose, and are deeply committed to the engagement and consensus-building needed to make their recommendations as likely as possible to be adopted by this and future governments.

This is a pivotal year for pensions policy, and we need to design a system that feels fair to the people who will live with it, and one that will outlast changes in government and withstand both a febrile political climate and challenging economic times. This is going to be no easy task.

That is why we need the views of a wide spectrum of people to be considered. I believe public engagement, through methods such as Citizen’s Assemblies, must be central to the next phase of reform, by helping to build and provide evidence for trust and consensus among citizens on the shape of future pensions policy. We look forward to supporting the essential work of solution development and consensus-building that the Commissioners have ahead of them in the months to come.