On Monday, the UK Government launched the second phase of its pensions review, which aims to address retirement income adequacy by examining the barriers to saving, especially for low earners and the self-employed, and exploring long-term reforms to create a fairer and more sustainable pensions system.
This next stage has been long awaited, following a first phase that focused on improving investment outcomes through consolidating defined contribution schemes, reforming the Local Government Pension Scheme, and encouraging greater pension fund investment in UK productive assets.
The long-promised second step didn’t just stall by accident – it was a political casualty. After the Chancellor unveiled her National Insurance (NI) hike in the autumn budget, piling extra costs on businesses, it became almost impossible to turn around and ask employers for more.
Now, with the review back on track, ministers are dusting off an old playbook: the independent Turner Commission model, last seen under the Blair government. The question is whether this reboot can tackle the real problem – a pension system that is creaking – with millions facing retirement incomes that simply won’t cut it.
Work and pensions minister, Liz Kendall, lamented the current system as characterised by “incomes that are too low, risks that are too high, and a system that is too unequal”. The review therefore aims to provide a comprehensive assessment of the UK’s private pensions landscape, aiming to deliver recommendations by 2027.
A growing pensions challenge
The launch follows the release of new figures from the Department for Work and Pensions (DWP), which show that more than 14.6 million working-age individuals – amounting to more than 40% of the population – are not saving enough for retirement. Lower-income workers, the self-employed, and some ethnic minority groups are disproportionately impacted, while 3 million self-employed workers are not currently contributing to any pension scheme whatsoever.
While the introduction of auto-enrolment in 2012 significantly increased participation in workplace pensions, contributions remain relatively low, with around half of private sector workers putting aside the minimum 8% of earnings – a level many experts view as insufficient for a secure retirement.
Projections suggest that retirees in 2050 will have 8% less private pension income than those retiring today, meaning state pensions will be increasingly relied upon to fill the gaps.
Limits on immediate policy change
Despite these trends, the Government has ruled out several near-term policy changes. Pensions minister, Torsten Bell, confirmed there would be no increase to minimum auto-enrolment contribution rates during this Parliament, nor will the commission be allowed to assess the future of the state pension triple lock, a politically sensitive commitment to raise the benefit annually in line with inflation, wage growth, or 2.5%, or make recommendations on pension tax reliefs.
Additionally, previously legislated plans to extend auto-enrolment to younger workers aged 18–20 have been delayed until the commission reports back in 2027. These restrictions have raised serious doubts among stakeholders about the commission’s ability to influence the most useful levers of reform.
Diverging views on contributions
There is broad consensus amongst financial and pensions institutions that total contributions into workplace pensions need to rise over time. Industry groups have pointed to international comparisons, notably Australia’s 12% mandatory employer contributions, as a potential benchmark. However, increasing contributions remains politically and economically contentious – particularly for smaller businesses, following the rise in employers’ NI rates from 13.8% to 15%.
Many are now concerned that extra hikes could lead to higher costs for businesses, thereby slowing down hiring and diminishing profitability, in particular for SMEs with less capacity to shoulder additional costs. Labour’s decision to avoid changes to contribution rates at this stage therefore appears aimed at balancing fiscal constraints with the need for longer-term reform planning.
Mandate and timeline
The commission will be chaired by Jeannie Drake, a veteran member of the original Turner Commission, alongside Ian Cheshire and Professor Nick Pearce. Over the next 18 months, it will examine structural barriers to saving and produce a roadmap for a “strong, fair and sustainable” pensions system. Ministers have positioned the commission as a long-term policy exercise, with reforms unlikely to be implemented until the next Parliament.
What this means for business and investors
For employers, particularly smaller businesses, the status quo on contribution rates will remain the same for the rest of this Parliament. However, future reforms could bring additional requirements – especially if the commission recommends a gradual rise in minimum contributions or proposes new mechanisms to support the self-employed.
Financial services firms and pensions providers may find opportunities in any future expansion of savings coverage or innovation in retirement products.
Next steps
The commission’s first report is expected in 2027 giving policymakers time to consider recommendations ahead of the next election. Until then, businesses and other stakeholders will need to stay on top of developments, particularly around emerging themes such as pension adequacy, savings engagement, and the future role of the state pension.
How we can help
At Whitehouse Communications, we provide strategic insight into the UK’s evolving financial services policy and regulatory landscape. Whether you’re a business assessing potential long-term changes or a sector organisation seeking to shape the review process, we support and deliver informed engagement with policymakers and regulators – ensuring your voice is heard throughout the decision-making process.
To discuss the implications of the pensions review for your organisation, or to receive tailored support and stakeholder positioning in financial services more broadly – get in touch with our team!
