The Lead Untangles: A pensions crisis that threatens to derail young futures

This crisis was on the cards even before Trump lobbed his trade war hand grenade into the equation.

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Apr 25, 2025

Liz Kendall MP, The Secretary of State for Work and Pensions (Leicester West, Labour). Pic: House of Commons

Introducing The Lead Untangles: In an era where misinformation is actively and deliberately used by elected politicians and where advocates and opposers of beliefs state their point of view as fact, sometimes the most useful tool reporters have is to help readers make sense of the world.

The Lead Untangles will now be delivered via email each Friday by The Lead and focuses on a different complex, divisive issue with each edition. The entirety of The Lead Untangles will always be free for all subscribers.

At a glance facts

When Donald Trump’s Liberation Day tariffs wiped billions off the stock markets earlier this month, UK pension holders looked anxiously at their declining pension pots and started swotting up on global trade regulations. Around a third of the £3 trillion of assets in the UK pension sector is held in listed shares both here and internationally.

In fact, a pensions crisis was looming even before Trump sparked a trade war.

The UK devotes a smaller percentage of its GDP to state pensions and pensioner benefits than most other advanced economies. And although auto-enrolment in workplace pensions since 2012 has boosted savings, experts warn that they are still insufficient for many people to have a comfortable retirement.

Stagnant wages and increasing longevity are contributing to a future of rising pensioner poverty.

Polling last year by the Living Wage Foundation found that more than half of workers fear they may never retire. It commissioned research from the Resolution Foundation showing the average pension pot required for a basic standard of living in retirement has soared by 60 per cent, from £68,300 in 2020-21 to £107,800 in 2023-24.

The research found that, on average, a retiree needs an income of £19,300 a year for a basic standard of living. This varies from £13,500 to £28,400 depending on relationship status and housing tenure.

“While an increasing number of workers in the UK are saving for retirement, many low earners are not saving enough to achieve a minimum standard of living in retirement,” said Molly Broome, Resolution Foundation economist.

Context

You had to be both lucky and unlucky to get an occupational pension in the 16th century. One of the first among very few was the Chatham Chest, established in 1590 for seamen – but only if they had been wounded. According to the Pensions Archive Trust, this was followed in 1672 by a state pension scheme for retired navy officers.

Even until the late 19th century there was limited provision. The UK state pension was established in 1909, following extensive campaigning, but paying out only to those aged 70 and of “good character”.

The state pension as we know it – funded by National Insurance contributions – was established in 1948 following the Beveridge Report, and remains a cornerstone of the welfare state.

Occupational pensions grew rapidly through the 20th century, in two forms: defined benefit or final salary schemes, which guaranteed members a proportion of their salary on retirement; and defined contribution schemes, whose outcome depended on the amount paid in.

The coalition government introduced a triple lock on the state pension in 2011, guaranteeing it would rise by the highest out of inflation, average earnings rises, or 2.5 per cent. Such is its popularity as a policy, the new Labour government has sought to take credit for it solely because it promised to renew it.

But the triple lock also comes under a lot of political pressure from those who see it as too expensive or unfair on younger people, whose benefits are not similarly guaranteed. Older people are more likely to vote than younger people, and more likely to vote Conservative.

Earlier this month, Keir Starmer reiterated his commitment to the state pension in the Commons, saying: “We can commit to the triple lock because we restored stability after they [the Conservatives] crashed the economy.”

Alongside auto-enrolment, another significant change for occupational pension holders from the coalition government years was the ability to withdraw the cash and do what they like with it once they reached the age of 55.

The widespread joke was that it would fund Lamborghinis for the middle aged, but more seriously it led to the British Steel scandal in 2017-18, when thousands of steelworkers in Scunthorpe and Port Talbot were given dodgy advice by financial advisers to transfer money out of their gold-plated defined benefit schemes into poorer plans, resulting in big losses for many.

The British Steel failure is the latest in a list of modern pension scandals, dating back to Robert Maxwell’s plundering of Mirror Group employees and the collapse of Eagle Star. Many steelworkers have yet to receive redress.

In this context, Rachel Reeves’ plans to allow companies to use surpluses in their defined benefit pension schemes for investment have received criticism. Government sources suggest this could unlock between £40 billion and £100 billion for the underperforming economy – but critics warn looser safeguards could put retirements at risk.

There has been a better reception for the Chancellor’s plan to force public sector pension schemes to merge and focus more directly on UK investment – but again there have been warnings that these funds owe their obligations more to the pension holders than the wider economy.

What do pensions actually do?

For a man born on or after 6 April 1951 or a woman born on or after 6 April 1953, the new state pension rises this year to £230.25 a week. Thirty-five years of qualifying National Insurance contributions are required for the full amount.

For men born before 6 April 1951 or a woman born before 6 April 1953, the basic state pension rises to £176.45 a week. For the full amount, 30 years of National Insurance contributions are required.

Money from pensions is generally taxed as income.

For information on pensions see the Citizens Advice website.

What the left is saying

“I suggest that a quarter of all new pension contributions should be invested in new projects in the UK that deliver for the climate transition and create new employment opportunities in the UK. In other words, our savings should be used to create not just the future prosperity of those on whom we will have to rely to support us in our old age but also to make sure that there is a planet for us and our children to live on.” - Richard Murphy, former chartered accountant and political economist

“The privatisation of pensions, a central part of the neoliberal revolution, resulted in the growth of large asset managers, responsible for the investment of other people’s savings without any democratic oversight. These institutions have channelled workers’ savings into industries that undermine their interests, such as the oil industry. They then use their power as shareholders to enforce corporate practices that further undermine workers’ interests by, for example, demanding cost-cutting measures such as wage cuts to boost returns.” - Grace Blakeley, economics and politics commentator

What the right is saying

“Means-testing is something which we don't do properly here. Starting with the triple lock is not how to solve the problem. We need to start with why are we not making the same kind of money we used to make… We’ve got to give something to the next generation. What are we leaving them with?” - Kemi Badenoch, leader of the opposition

‘The announcement that the Treasury plans to push ahead with the amalgamation of the Local Government Pension Schemes (LGPS) is very welcome. It was the CPS, in a series of reports by pensions expert Michael Johnson, that first drew attention to the fragmented, costly nature of the LGPS, which was failing to deliver value for its members. We will need to see the full details – not least given the failure of previous reforms to unlock the LGPS’s potential – but there is significant potential here to cut costs, generate better returns and create a major vehicle for long-term investment.” - Robert Colville, director of the Centre for Policy Studies

What happens next?

Savings and retirement business Phoenix Group is urging a rise in auto-enrolment for workplace pensions from 8 per cent of earnings to 12 per cent. It also wants more flexibility, including requiring employers to continue their contribution if an employee opts out.

Others urge more flexible and part-time working, to allow people to continue working for longer.

The gender gap in pensions needs addressing. Using data from 2018-2020, the Department for Work and Pensions measures it at 35 per cent, which means women have 35 per cent less private pension wealth than men.

There is also the £31 billion question mark of lost pension pots. At a recent event hosted by the Transparency Task Force, which campaigns for financial services reform, research by the Pensions Policy Institute was highlighted showing that there are nearly 3.3 million pension pots in the UK for which the provider has lost contact with the owner.

“The average size of a lost pot is now £9,470, and savers would not want to miss out on this money that they could use to improve their retirement,” said PPI analyst John Upton.