This article was written by Tom Shields Policy and Public Affairs Manager.
Two decades ago, the government established the Turner Commission to propose policy solutions to fix the UK’s pensions system. At the time, millions of people were saving nothing towards their retirement, and pensioner poverty was set to spiral. Amongst other recommendations, the Commission proposed “auto-enrolment”, the policy which has led to millions of workers being automatically signed-up to a pension scheme.
This was a groundbreaking change, and it has been a clear success in getting more people saving. However, participation alone does not guarantee security in later life. For many low-paid, part-time, and insecure workers, saving “something” still means saving too little.
It was hoped that higher participation would, over time, translate into adequate retirement incomes across the population. The Commission assumed that employers would be generous in offering employees more than statutory minimum contributions, and that future governments would be sufficiently bold in increasing the statutory minimums anyway.
Now the government is looking at pensions again in an effort to build on the reforms Turner started. The Lab has been considering policy recommendations of its own, focussed on the needs of those least-served by the current system. As this blog explains, the Lab is working on a minimum annual pension saving floor as a potential solution to ensure everyone saves enough to achieve a sufficient income in retirement.
Auto-enrolment: a success to build on
Auto-enrolment transformed the UK pensions landscape by dramatically increasing pension coverage and normalising pension saving across the workforce. Millions who would previously never have joined a pension are now contributing, but the benefits of the system are uneven.
Those with stable, full-time employment and higher earnings accrue meaningful pension wealth, while others are left behind. The system’s structural weaknesses flow directly from the way in which savings are built. Percentage-based contributions applied to low pay generate meagre savings, and the model fails to adequately accommodate people such as those in part time work, with career breaks, or the self-employed.
Simply raising the percentage statutory contribution rate within this framework would bring clear benefits, but it also risks entrenching inequalities rather than solving pension adequacy for low earners. Indeed, the scale of inequality in pension wealth distribution indicates how unequal pension wealth accumulation already is. A 2022 analysis by the Office for National Statistics suggests that the top 10% of pension savers own over 60% of all private pension wealth, while the bottom 50% of savers own less than 1% of all private pension wealth.
The underpensioned: not saving enough, and not saving at all
The “underpensioned” – those who do not build up sufficient pension savings during working age to fund an adequate income in retirement – are not an insignificant group. They include millions of people whose working lives do not fit the assumptions baked into the pension system.
Some groups are systemically at greater risk of being underpensioned. This includes, for example, women (given the disproportionate burden of unpaid care and domestic work); disabled people; and those in insecure or low-paid work. These groups are far more likely to move in and out of auto-enrolled pension schemes, contribute at very low levels, or miss out on pension saving altogether.
Their outcomes reflect structural features of the labour market and pension system, not individual failures to plan. Without reform, these patterns will be carried forward into retirement, recreating pensioner poverty for a new generation despite the apparent successes in broadening participation of today’s system.
Current trends are concerning. It has been suggested that pensioner poverty could almost double over the next 15 years, compounded by issues such as the composition of housing tenure among generations soon to retire.
Searching for solutions: a cash benchmark
In looking for alternative solutions, the Lab was drawn to the Living Pension standard. Developed to complement auto-enrolment, it starts from a simple question: “what do people actually need to live on in retirement?”
A distinctive feature of the Living Pension is the cash “annual saving benchmark” – a minimum annual cash amount that needs to be saved to provide for a living income in retirement. A savings benchmark is different from percentage-based contributions, which always shrink in real terms as pay falls.
From voluntary standard to policy proposal
The Minimum Pension Savings Guarantee (MPSG) under development at the Lab builds directly on the logic of the Living Pension – specifically the cash benchmark aspect – by starting with the questions of: “what is needed to ensure all can save enough to have an adequate standard of living in older age?”
If we know roughly what level of saving is needed to avoid poverty in retirement, there is a strong case for making that minimum universal. The MPSG would guarantee that everyone receives at least a baseline level of pension saving each year, regardless of earnings or work pattern. It rests on shared responsibility between employers and the state, while placing no limits on additional voluntary saving.
Developing the idea: learnings so far
Working on the MPSG has been a process of learning and iteration. Conversations with charities and policy experts have highlighted both the need to systemically address undersaving, and the complexity of designing a fair, workable system. Engagement with members of the Better Pensions Coalition has been valuable and insightful in this process.
Trade-offs and policy decisions remain – for example, how to split costs between employers and the state, and how to ensure self-employed workers are included. The Lab might also consider how state-supported contributions could support the government’s broader investment agenda which looks to get more pension fund capital into productive assets.
But feedback on the broader approach and reframing of the problem has been positive. By anchoring pension saving in retirement living costs rather than wages, a cash benchmark brings a new perspective to the debate around adequacy and fairness. It makes visible how far current policy falls short for low earners – and points toward a system designed around need, not just income in working life.
Robust modelling of costs, distributional impacts, and adequacy outcomes is essential to make the proposal credible. This is something the Lab is currently exploring. At the same time, evidence alone is not enough: policy design must reflect fairness and the right to a secure retirement. Thankfully, the Pensions Minister himself realises the need for action.
Why now: the Pensions Commission and a moment for change
The government’s decision to revive the Pensions Commission now creates a rare opportunity to revisit the fundamentals of the UK pension system. Previous reforms succeeded in boosting participation, but too often the debate has remained focused on average outcomes, opt-out rates, and contribution percentages, rather than on how everyone can save enough to avoid poverty in retirement.
There is a risk that the Commission simply revisits familiar territory. Equally, there is a chance to do something different: to centre adequacy and those least well served by the current system. Opportunities like this are rare, and the choices made now will shape retirement outcomes for decades.
If you’d like to discuss this work, or get involved in the wider Better Pensions Coalition, please email Marloes Nicholls, Head of Advocacy at: marloes@financeinnovationlab.org.