The UK’s pension system faces “serious and growing challenges” that demand urgent and sweeping reform, according to the final recommendations of the Institute for Fiscal Studies’ (IFS) flagship Pensions Review.
The independent report – part-funded by the abrdn Financial Fairness Trust and supported by advisory input from the pensions industry – warns that millions are at risk of inadequate retirement income due to systemic shortcomings in both state and private pension provision.
The review finds that current policy settings are “neither delivering value for money nor addressing fairness” across generations. Central to the IFS’s concerns is the sustainability of the state pension – particularly the triple lock – and the inadequacy of private pension savings among key groups, including the self-employed, women, and younger workers.
Zoe Alexander, director of policy and advocacy at the newly rebranded Pensions UK, said the IFS report was a “timely and welcome contribution” and echoed concerns that “the scope of auto-enrolment is too narrow, and AE [auto-enrolment] contributions are too low for most workers”.
She noted that Pensions UK research shows “one in five working households are likely to achieve less income than needed to meet the Minimum level of the Retirement Living Standards”.
Recommendations and mixed responses
The IFS proposes a new “four-point pension guarantee”, including an earnings-linked state pension and targeted private pension reform. However, its suggestion to replace the triple lock with earnings indexation has drawn mixed responses.
Glyn Bradley, chair of the Institute and Faculty of Actuaries (IFoA) pensions board, warned that the current system increases the state pension “over the long term faster than both earnings and inflation”, which is “at odds with almost every other area of state spending”.
Others argue for caution. Barnett Waddingham’s James Jones-Tinsley acknowledged that while the projected £40bn cost of the triple lock by 2050 is “alarming”, the IFS may be “overly pessimistic”, adding: “Rather than rushing into wholesale reform, policymakers should focus on gradual adjustments that preserve the triple lock’s core protective function.”
The report also calls for expansion of auto-enrolment, higher default contribution levels for middle- and high-income earners, and mechanisms to avoid “over-saving” by those on persistently low incomes.
“We focus on reforms to improve outcomes for those most at risk of poor retirement outcomes under the current system”
Institute for Fiscal Studies
The IFS noted that around 80% of self-employed workers save nothing for retirement – a glaring gap that risks exacerbating inequalities in old age.
Martin Willis, partner at Barnett Waddingham, welcomed the “pragmatic roadmap” but cautioned that “complexity remains a concern” in the IFS’s proposed reforms, particularly for contribution banding and opt-down mechanisms.
“The report itself notes that ‘replacement ratios turn people off’ – which is a warning we should heed,” he said.
Standard Life’s Mike Ambery underscored the need for inclusivity: “There is not a one-size-fits-all solution […] The risk of over-saving for those on low incomes is significant but so too is the need for most of those on average or higher earnings to save more.”
For institutional investors, the report’s nod toward Collective Defined Contribution (CDC) schemes and retirement-only default strategies is notable.
The IFS backs enabling a broader range of decumulation options, aligning with policy developments such as the Pension Schemes Bill and the government’s expected adequacy review.
As Stewart Hastie, chair of the Association of Consulting Actuaries, concluded: “We hope that we will finally see a longer-term plan to redress the balance between money today and long-term saving.”
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