21 July 2025, 10:02
Britain’s pension problem is growing – this is our best chance to fix it.
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By Mike Ambery
The announcement of a new Pensions Commission today represents what could turn out to be on the of the most significant developments for people’s long-term savings in at least a decade.
There is a growing recognition that the majority of people are not on track for a healthy level of income in retirement. In 2012, the government introduced auto-enrolment, a process whereby private sector employees automatically start saving into a pension above a certain income level. This policy has been a huge success in terms of increasing the number of people saving and has gone some way to offsetting the decline of so-called final salary pensions in the private sector.
These arrangements are lulling many people into a false sense of security, as contributions are equivalent to 8% of salary. At this level of saving, our analysis shows that just one in seven people are on track for a good standard of living in retirement and we are building up problems that will start to be felt acutely in the 2040s without action.
There are undeniable challenges when it comes to people’s ability to save more and many households and businesses face financial pressures. A degree of long-term thinking will be required and the Commission may look to Australia for inspiration as their pension contributions have been rising gradually to 12% of earnings over many years.
The Commission will also look at issues like the gender pension gap. The value of workplace pension contributions diverges for men and women between the ages of 25 and 34, and the gap widens with age. This is typically a consequence of life events like motherhood, divorce and caring responsibilities, which can all disproportionately affect a woman’s earnings at different stages of their working life. The self-employed are another group of people identified by the Commission as a focus. Savings levels among this group have been declining for some time, and there is an unresolved question over the mechanism and incentives that need to be used to reverse this situation.
There is no silver bullet. The Commission will need to work hard to find practical policy solutions that can secure broad societal buy-in. There are, however, reasons for optimism, as auto-enrolment emerged from a similar Pension Commission in the early 2000s. We hope this edition can make an equally fundamental change, setting people up for a retirement they can look forward to.
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Mike Ambery is the Retirement Savings Director at Standard Life, part of Phoenix Group.
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