Why long-term thinking is the only way to solve Britain’s pensions saving problem

At a time of increasing political uncertainty, taking the long-term view about nationally important issues such as pensions may become harder, but it’s no less important. Pension systems work over a much longer time horizon than the electoral cycle and therefore require a broad-based consensus over how they operate. In the current political and economic climate, the way in which we build consensus around issues that really matter, like how we fund later life, is more important than ever.

Against this backdrop, the Government has returned to the successful approach of the Turner Pensions Commission at the beginning of the century to reconsider how the UK’s pensions system should deliver an income for all in retirement.

Not only did the previous Commission establish a sensible framework for the UK’s state and workplace pensions system, it also embedded this across political parties and the wider economy.

Auto-enrolment

Alongside proposals for reform of the state pension, enacted in a modified form in 2014, the first Commission also proposed auto-enrolment, where workers are automatically added to a workplace pension scheme. Since 2012, this innovation has reversed decades of decline in workplace pension participation and has brought 11 million more people into long-term saving.

Pensions Commission interim report 2026

The interim report of the new Pensions Commission, published on Tuesday, recognises these successes, but is frank about where the UK’s pension system is falling short, with 15 million people still not saving enough for retirement. Some are excluded from auto-enrolment by design – either because they are self-employed or because they earn too little to qualify. Others, particularly women and some ethnic minority groups, suffer structural disadvantages, often systemically linked to lower pay and taking time out of work to care for children.

More fundamentally, the report reflects a broader reality that has become increasingly difficult to ignore: the assumptions that underpinned how pensions in this country work are changing. The first Pensions Commission operated in a world where home ownership was more widespread, working patterns were more stable, and retirement was relatively predictable. That is no longer the reality for millions of savers today.

Retirement income

The latest report is a clear signal from Government that this cannot continue and that further reform is needed. People currently outside of the scope of retirement saving must be brought into it and millions more need to be helped to save more.

The Commission’s main focus is on ensuring that those on low and moderate earnings get to an adequate retirement outcome. There’s nothing here that’s going to stop higher earners from saving more – the report shows how, with higher average contribution rates and the lion’s share of pensions tax relief, higher earners will continue to be the main beneficiaries of the UK’s pensions system. But those on well above average wages are not the focus of the report.

Pension adequacy and measuring outcomes

The Commission also proposes that we need a new way to measure adequacy: that people are saving enough and will have enough to live on in retirement. And they argue that this measurement system should guide policy. This is genuinely new and could revolutionise how people understand and plan for retirement.

For too long the pensions sector has been skirting round the problem: being clear about what sort of income auto-enrolment and the state pension should deliver for people is key. The pension system costs roughly three times the defence budget: for that sort of money, we should be able to clearly articulate what it’s there to do.

Understanding the UK pensions gap

I remain optimistic that the right combination of leadership, rigorous thinking, and a willingness to act in the broader national interest can help broker a new pensions consensus. Optimism, though, isn’t a substitute for realism: fulfilling this ambition in the face of low economic growth, tight household finances and tumultuous national politics will be extremely challenging.

What the report means for employers and the future

Ultimately, the measure of this latest Commission will not simply be the quality of its recommendations. It will also be whether the Commissioners and Government can match the deftness of their predecessors in building support for pensions reform across the UK. Without that, the country will continue to struggle to address the challenge of an aging society.

Patrick Heath-Lay, Chief Executive Officer for People’s Pension 

*This article was originally published on Professional Pensions.