A revived commission will try to get agreement on how to tackle how to get people to boost their pensions savings – but the state pension age is also being looked at again
Work and Pensions Secretary Liz Kendall has warned Britain risks a “tsunami” of poverty among older people.
Ms Kendall issued the blunt message as the government unveiled a commission to tackle the issue – and kicked off an early review of the state pension age. The age people can start claiming the state pension is already scheduled to increase from 66 to 67 between 2026 and 2028, then to 68 between 2044 and 2046. The government is unlikely to make any decisions on further increasing the state pension age to 69, or the timetable – before the next election, due in 2029.
It is just one of a number of politically explosive decisions that are set to face this and future governments given the ageing population and strain on the public finances. The new commission – which will report back in 2027 – will examine why future pensioners are on track to be poorer than today’s and make recommendations for change.
It follows a previous commission, launched by then Labour PM Tony Blair in 2006, which led to the roll-out automatic enrolment in the workplace and means 88% of eligible employees are now saving, up from 55% in 2012. “We are going to complete the job,” said Pensions Minister Torsten Bell. “Stuff is going to happen. We know we have to move.”
Action is needed given people drawing their pension 25 years from now are set to be £800, or 8%, worse off per year than their counterparts today. And four in 10 – nearly 15 million people – are not saving enough for retirement.
One thing the three-member commission is expected to examine is the differing challenges facing workers, including the low-paid and the estimated three million self-employed people who are not saving into a pension at all. It is also likely to assess whether the minimum auto-enrolment contributions – currently 5% of wages for employers and 3% for workers – should be increased, though the government has ruled out upping them in this parliament.
Ms Kendall told a launch event in London: “If you are paying off your mortgage in retirement or still renting in retirement, that is what is driving this tsunami of pensioner poverty that I think is coming our way.”
Morgan Vine, director of policy and influencing at the charity Independent Age, welcomed the commission’s launch. But she added: “We are disappointed that the review will not include a focus on the incomes of people currently over state pension age.
“Every day our advisers hear about the difficult decisions older people on a low income are making to survive, including skipping meals and reducing the number of showers they take to save money. We urge the government not to forget the almost two million older people currently living in poverty and the further one million hovering just above the line and put in place tangible changes to support them too.”
Laurence O’Brien, a senior research economist at Institute for Fiscal Studies, said: “Any reforms to boost pension saving must be carefully targeted to minimise falls in take-home pay among those who can least afford them.”
The government has also avoided making any decision on the future of the triple lock, the pledge that the state pension will increase in line with average earnings, inflation or 2.5% – whichever is higher. The promise has boosted pensioners’ incomes but is proving increasingly costly to honour.
Labour has vowed to keep the triple lock for the lifetime of this parliament but sidestepped the question when asked by the Mirror She said: “The triple lock is out of the scope of the commission. We’ve got a very clear commitment for the entirety of this parliament.”
Helen Morrissey, head of retirement analysis, at Hargreaves Lansdown, said: “The slew of pension data released today lays bare the scale of the challenge facing the new pension commission. The question at the heart of it is how should pension adequacy be measured? The approach will differ depending on the measure used and several issues need to be considered.
“When you use measures such as Pension UK’s retirement income standards, lower earners look like they are under saving, while target replacement rates show more of them are hitting what they need. This contrasts with higher earners who risk sleepwalking into a disappointing retirement unless they can be incentivised to boost their contributions. Getting the measure right is vital in striking the balance of people saving appropriately and it may not be as simple as hiking contributions across the board.”
What has the government launched?
Two things: one was reviving a pensions commission to “explore the complex barriers stopping people from saving enough for retirement”, which will report back in 2027. The other is a review of the state pension age, something the government must do by law, but which has been kicked off early.
What’s the scale of the problem?
Four in 10 – nearly 15million – people aren’t saving enough for retirement. A worrying 45% of working age adults are saving nothing at all into a pension, with the biggest issue among low earners, the self-employed and some ethnic minorities.
When can I start paying into a pension?
A: The younger the better. But you can opt into your employer’s workplace pension scheme from the age of just 16, and start a own personal pension aged 18. Once you’re 22 and earn more than £10,000 a year, your employer will sign you up to its pension scheme and start contributing, unless you opt-out. Employers pay in a minimum of 3% of your salary and workers a minimum 5% – so 8% in total, including government tax relief. You can ask to pay in more than the 5%, and some employers might match your contribution up to a certain limit.
How much should I be paying in?
Generally, the later you leave beginning paying in, the more you might find you’ll need to contribute to make up for lost time. The pensions industry has called for the minimum auto-enrolment level to be raised from 8% to around 12% over time. Industry giant L&G has this suggested rule of thumb: take your age, halve it, and pay in that percentage of your salary. So, if you are 30, pay 15% of your salary into your pension. If you’re 40, pay in 20% of it.
How much will I need in retirement?
That depends much money you’re paying into a private pension – if at all – what it’s invested in, and how well it does over the years.
According to Pensions UK, many people with a private and a state pension, plus other savings, will “go a long way” to meeting their outgoings in retirement. It suggests needing at least £13,400 a year for a single person – £21,600 a year for a couple – to cover just your needs, with some left over for fun. That jumps to at least £31,700 a year for a single person – £43,900 a year for a couple – for more financial security and flexibility. But the amounts differ a lot if you’ve still got big commitments, such as rent or still have a mortgage.
What about if I rely on just the state pension?
According to the charity Independent Age, 13% of all pensioners and 18% of single pensioners rely entirely on the state pension and other financial entitlements provided by the state for all of their income.
The new State Pension currently pays a maximum amount of £230.25 a week for 2025/2026 to people with 35 years’ worth of National Insurance contributions or credits. So at £11,973 a year, that is less than the £13,400 ‘minimum’ income, if retirees relied on the state pension alone. Those who reached state pension age before April 2016, who are on the older basic State Pension, now receive £176.45 a week.