The last twenty years have seen the continued decline of defined benefit (salary-linked) pensions in the private sector, the abolition of state earnings-related pensions, low interest rates, falling homeownership, low typical contributions to defined contribution schemes, and a collapse in pension saving among the self-employed. The introduction of pension freedoms has given people flexibility but means there is no longer the same degree of longevity-risk-sharing that defined benefit pensions and annuities provide. Individuals, rather than employers or insurance firms, now bear the burden of the risk of poor investment performance and uncertain lifespan.

We therefore need a major review of pension provision now in order to give us a chance of avoiding a future that looks much worse than the present.


1. Many employees are only saving very little for retirement. Almost a fifth of working age private sector employees (around 3.5 million people) do not do any pension saving in a given year. This is particularly true of low earners who are below the threshold for automatic enrolment. Perhaps more concerning, most of those participating in a pension save low amounts. 61% of the middle-earning private sector employees who are contributing to a pension are saving less than 8% of their earnings, and 87% are saving less than the 15% which would be more in line with what Lord Turner’s Pensions Commission thought appropriate

2. Fewer than one-in-five self-employed workers are saving in a pension. This compares with around a third when the Pensions Commission reported. This is particularly concerning given the growth in self-employment and that the decline in pension membership among the self-employed is greatest among those who have been self-employed for a long period, and that those who do save in a pension often save relatively low amounts that remain fixed in cash terms over a number of years.

3. Most private sector pension participation is in the form of defined contribution pensions which leave individuals bearing risks that are difficult to manage well. Relative to defined benefit arrangements, they do offer members much more flexibility. But unlike in defined benefit plans, there is no risk-sharing with employers, other members or other generations. The fraction of private sector employees participating in a defined benefit pension halved from 24% in 2005 to 12% in 2020.

4. Increasing numbers approaching retirement live in more expensive, insecure, private rented accommodation. At age 65, only 3–4% of those born in the 1930s and 1940s lived in private rented housing, compared with 6% for those born in the 1950s and with what looks likely to be 10% for those born in the 1960s. This share could be even higher for younger generations, leading to a combination of a low standard of living in retirement and greater reliance on housing benefit.

5. Higher state pension ages are a coherent response to the challenges of increased longevity at older ages, but they pose difficulties for many and longevity improvements have not been as big as predicted a decade ago. The higher state pension ages rise, the harder it will be for some to remain in paid work until that age. Among those in their late 60s, 35% of men and 40% of women are disabled (i.e. have a longstanding health condition that has a substantial negative effect on their daily life). These rates rise to 43% and 46% respectively for those with low levels of formal education. A higher state pension age also pushes up income poverty rates among those in their mid 60s, in part because the working-age benefit system is less generous than the support available for pensioners. For example, the increase in state pension age from 65 to 66 led to a more than doubling of the income poverty rate for 65-year-olds.

6. Demographic and other pressures mean that spending on state pensions and other benefits for pensioners is already projected to rise by £100 billion a year by 2070, with even bigger increases in health and social care spending. If the state pension age is increased as legislated, the share of adults over the state pension age is projected to rise from 24% today to 27% in 2050 and 30% in 2070. The most recent projections from the Office for Budget Responsibility are for state spending on payments to pensioners to rise from 5.6% to 9.6% of national income over the next 50 years; this increase is equivalent to £100 billion a year in today’s terms. The UK is, however, in a better fiscal position on this issue than many western European countries, with less public spending on state pensions and more favourable demographic trends.

7. Those retiring with defined contribution pension pots face considerable difficulty and risk in managing their finances through retirement. The rising prevalence of defined contribution pensions, combined with pension freedoms, means that many will be able to draw their pension flexibly through their retirement. But decisions around how to draw down pension wealth are high-stakes and will need to be made with care. Currently, a man aged 66 is expected to live for a further 19 years, but 13% can expect to survive until age 95; the equivalent figures for 66-year-old women are 21 years with 20% making it to age 95. There are risks of running out of  The Institute for Fiscal Studies, April 2023 4 Challenges for the UK pension system: the case for a pensions review private resources or of being so cautious as to end up suffering a needlessly austere retirement. While pension freedoms do give people the opportunity to take control of their own finances, even for the most numerate the decisions on how to draw on their pension wealth through their retirement are difficult.

8. While current pensioners are still doing well on average, and many of the recommendations of the Pensions Commission have been successfully implemented, the future looks risky at best for many current workers hoping for a comfortable retirement. The last 20 years have seen the continued decline of defined benefit pensions in the private sector, the abolition of state earnings-related pensions, low interest rates, falling homeownership, low average contributions to defined contribution arrangements, the introduction of pension freedoms which offer flexibilities but reduce the extent of risk-sharing in retirement, and a collapse in pension saving among the self-employed. We need a major review of pension provision now in order to give us a chance of avoiding a future that looks worse than the present.