Problem Register - #2 · Pensions & Retirement
Pension adequacy and later-life saving
Priority Score
- Scale5/5
- Severity4/5
- Cost of inaction5/5
- Tractability4/5
- Deliverability4/5
- Cross-partisan viability4/5
- Time-criticality3/5
Seven dimensions, each scored 1-5 and summed to a total out of 35. It is a triage and communication tool to compare problems - not a measure of truth. How it is derived is set out in The Method.
The problem
Automatic enrolment has succeeded in getting most employees saving into a workplace pension - but the amounts saved are too low for an adequate retirement, and large groups, particularly low earners and the self-employed, save little or nothing. The country is quietly accumulating a generation of under-pensioned retirees.
The evidence
Around 23.3m employees actively saved into a workplace pension in 2024 - about 82% of employees and 89% of those eligible for auto-enrolment. But the statutory minimum contribution is 8% of qualifying earnings (3% employer, 5% employee including tax relief), and has not risen since April 2019 - widely judged below an adequate level. The Department for Work and Pensions' 2025 analysis indicates a large share of savers are on track to fall short of target retirement incomes. Self-employed pension participation has fallen to roughly 20%, from about half in the late 1990s - some 4.4m working adults outside auto-enrolment altogether.
Why the market fails
This is a behavioural failure - present bias and inertia mean people predictably under-save for a retirement decades away - combined with a missing market: there is no straightforward private product that insures an ordinary person against outliving their savings. Auto-enrolment works precisely because it harnesses inertia rather than fighting it; the market, left alone, does not.
Why it has persisted
Raising minimum contributions imposes a visible, immediate cost on employers and on take-home pay for a benefit decades away - politically unrewarding. The 2017 auto-enrolment review's recommendations were accepted in principle but not implemented for years. The self-employed gap has been acknowledged repeatedly, with no mechanism adopted - a problem named and deferred.
Who bears the cost
Today's working-age savers, who will reach retirement short; the future state, facing higher means-tested pensioner support; and the self-employed most of all.
Policy direction - outline only
Proposed mechanism
A phased, pre-announced increase in minimum contributions above 8%, with rises timed to coincide with pay awards to soften the take-home-pay impact; removal of the lower earnings limit and a lower enrolment age; and an auto-enrolment-style default for the self-employed, plausibly operated through Self Assessment.
Must resolve
The interaction with means-tested benefits for low earners (for whom more pension saving now may not be in their interest), the phasing of employer cost, and the Self Assessment delivery mechanics.
Main risks
Opt-out rates rising if increases are too steep; pushback from small employers; harming low earners who need current income more than a future pension.