It’s time to complete Britain’s pensions revolution

Today’s announcement of a new Pensions Commission marks a welcome return to long-term thinking about retirement. The original Commission, launched more than two decades ago, laid the groundwork for auto-enrolment, which has enabled millions more people to save for later life. It sits up there with the National Minimum Wage on the pantheon of truly transformative public policy successes.

But despite the progress, the job is far from done. New analysis from the Department for Work and Pensions (DWP) warns that too many people are still under-saving, and the consequences are particularly worrying for future generations. Those retiring in 20 years’ time are, on current trends, set to have lower pension incomes than those retiring today – a further reversal of the social contract that each generation should do better than the last.[1]

This stark new finding from the Government is in line with our own research, which has shown that millennials born in the early 1980s could reach age 60 with £45,000 less in pension wealth than the youngest baby boomers.[2] That’s a serious hit to living standards in retirement, and it won’t improve unless younger cohorts start saving significantly more.

So, what’s going wrong? Part of the problem is simple: some people still aren’t saving at all. The DWP estimates that almost half of working-age adults are still saving nothing towards their retirement.[3] Auto-enrolment has dramatically increased workplace pension participation – from just 50 per cent of employees in 2009 to 80 per cent in 2023.[4] That’s a huge success. But the system still misses key groups: low earners, the self-employed, and anyone who takes time out of the workforce – like those with caring responsibilities or those experiencing long-term illness. This leaves women, in particular, at risk of falling through the cracks.

But the other part of the problem is more subtle: many people who are saving are only saving the minimum. Under current policy – comprising the State Pension and auto-enrolment with an 8 per cent default contribution rate – the typical earner can expect to replace just 51 per cent of their pre-retirement earnings. That’s well below the 67 per cent target the original Commission recommended.[5] It was hoped that the shortfall would be plugged by additional voluntary contributions, but they’ve largely failed to materialise.

The solution seems obvious: raise the default contribution rates. And for many middle and higher earners, that’s likely the right move. Job done already for the new Pensions Commission? Not quite, the problem is more complicated than that.

Our research found that raising default rates could actually hurt some low earners, for whom the current system may already be adequate. Pushing low earners too far may result in unintended hardship and increase opt-out rates – undermining the very goal of boosting saving.

With a flat-rate State Pension and a one-size-fits-all auto-enrolment system, there’s a real risk of some people saving more than they can afford, while others save too little. The new Commission must grapple with this trade-off carefully.

It’s also worth remembering that pensions aren’t the only part of the financial picture. Many people have other assets to fall back on in retirement such as ISAs and property wealth. In 2018-20, the typical median earner in their late 50s had sufficient resources to achieve their target replacement rate, even if some of that wealth lay outside their formal pension pot.[6] So focusing narrowly on how much people are accumulating into their pension might overstate the problem of undersaving. Of course. that’s not true for everyone.

Perhaps more urgent than addressing preparation for retirement is the need to sort out short-term savings. One in three working-age adults live in families with less than £1,000 in savings.[7] That lack of a financial buffer became painfully clear during the cost-of-living crisis, when many households struggled to cover even modest shocks.

Raising pension contribution rates (if that is the recommendation of the new Commission) will boost retirement incomes, but they’ll also make it harder for people to save into ‘rainy day’ accounts. When contribution rates go up, people don’t just cut back on spending – they also reduce liquid saving or go into debt: when default auto-enrolment contribution rates were increased for every £1 reduction in take-home pay due to higher pension contributions, employees reduced their consumption by 34p, with the rest of the contribution funded through either lower liquid saving or higher debt.[8] This trade off should not be ignored.

What’s the answer? Flexibility. The Commission should explore innovations like ‘sidecar savings’, where a small portion of contributions go into an accessible emergency fund alongside the pension pot. It’s a simple idea that could transform short-term resilience in the same way auto-enrolment transformed long-term saving, and needn’t distract from the core goal for many – boosting pension savings.

Going back to the turn of the century, Britain had low rates of pension saving and high rates of pensioner poverty. The original Pensions Commission under Adair Turner, John Hills and Jeannie Drake – who will serve again on the new Commission – transformed this landscape and started a pension saving revolution in workplaces across the country. But while retirement saving is essential, it’s not the only financial challenge people face. The new Pensions Commission has a rare opportunity to think big again, and complete the revolution. It should take it.

[1] Department for Work and Pensions, Analysis of future pension incomes, July 2025.

[2] M Broome et al., An intergenerational audit for the UK: 2023, Resolution Foundation, November 2023.

[3] Department for Work and Pensions, Analysis of Automatic Enrolment saving levels, July 2025.

[4] Department for Work and Pensions, Workplace pension participation and savings trends of eligible employees: 2009 to 2023, July 2024.

[5] M Broome & I Mulheirn, Perfectly adequate?: Revisiting pensions adequacy 20 years after the Pensions Commission, Resolution Foundation, October 2024.

[6] M Broome & I Mulheirn, Perfectly adequate?: Revisiting pensions adequacy 20 years after the Pensions Commission, Resolution Foundation, October 2024.

[7] M Broome, I Mulheirn & S Pittaway, Precautionary tales: Tackling the problem of low saving among UK households, Resolution Foundation, February 2024.

[8] T Choukhmane & C Palmer, How do consumers finance increased retirement savings?, September 2023.