From comfort to concern: why pension reform matters now

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Future generations of pensioners are on course to be poorer than today’s unless we act now.

The political debate over Winter Fuel Payments earlier this year shone a light on the two million pensioners in the UK that live in poverty and reconfirmed the strength of public support for policies that aim to provide comfort and dignity in old age. 

But future generations of pensioners are on course to be poorer than today’s. Analysis from the Department of Work and Pensions predicts that the average person retiring in 2050 – that’s someone who is in their early 40s now – will have an 8% lower income from their private pensions than someone retiring this year, and that 4in 10 people of working age are not on track for an adequate income in retirement.  

How do you measure pension adequacy? 

This measure of ‘adequacy’ is a relative one; it assumes we will need a certain proportion of our working age income in retirement. Specifically, it assumes that higher earners will need 50% of their working income, mid earners 67%, and lower earners 80%. But with the proportion of people owning their home by retirement predicted to fall from 78% today to 63% over the next 15 years, future pensioners may have housing costs to contend with on a scale not faced by today’s pensioners, and so we may yet find that it is more than 4 in 10 of us who are in for disappointment when we look to retire. 

When will the government take action on pensions? 

Back in 2016, the government at the time commissioned a review of our current system which recommended reforms to bring more lower earners into automatic workplace pension saving. After a long wait, legislation was passed in 2023 to enable the changes to be implemented. But they haven’t been. This is a major social and economic problem that has been clearly in view for a long time, but the political will to act has eluded government after government. 

This year, the prospect of action is now back on the table. At the start of the summer, the Government announced a new Pensions Commission – an independent panel of three experts in Baroness Jeannie Drake, Professor Nick Pearce and Sir Ian Cheshire, with backgrounds ranging across academia, business, unions, and politics – to go back to the facts and make recommendations for how to solve our undersaving crisis, with a remit that stretches wider than the 2016/7 review. While independent reviews take time – the Commission has been asked to report back in 2027 – the ultimate ambition is promising. 

But they do face challenges. First, employers, still managing the cost of higher national insurance contributions, may see the prospect of needing to contribute more to their employees’ pensions as yet another cost they will struggle to absorb. Second, people themselves are managing rising prices and long-term low wage growth, making the idea of saving more into a pension unrealistic for some. And third, the current auto-enrolment system isn’t built to support everyone - especially those in insecure jobs, people who can’t work due to illness, disability or caring responsibilities, and the self-employed. 

We must make changes now to make sure everyone can retire with financial security 

Even so, there are still reasons to be cheerful. We may not all share the same views about how our country should be run, or what the right role is for government and business in our lives. But most of us still care that our retirement deal – that we are able to retire with enough financial security to live a decent life in old age – is a deal that works for all of us, and for future generations. Reforming our private pension system to help more people saving enough is essential. We can better protect the retirements of tomorrow, but only if we start to take action today.