For many workers, retirement is drifting further out of reach. A new report from the Pensions Commission warns that at least 15 million Britons are not saving adequately for later life, leaving many with little choice but to work longer. Without action, this figure could rise to 19 million.
The Pension Cliff Edge
The pensions "cliff edge" is no longer a distant warning but a growing reality. As the cost of living continues to bite, the dream of a comfortable retirement is being replaced by a pragmatic and often frightening calculation of how long one might have to stay in the workforce. Many are getting their numbers wrong.
The crisis is particularly acute among low- to middle-earners and the self-employed, with only 4% of the latter group putting money into a pension. Auto-enrolment, introduced by the last Labour government and implemented by the coalition and Conservative administrations, has brought millions into the pension system, but about half of employees are contributing only the minimum required amounts—currently 8% of total earnings, split between employee and employer contributions.
The report also exposes a staggering gender gap, with women approaching retirement holding just half the private pension wealth of men. To address these failings, the commission is calling for a "renewed national settlement."
Why Has This Happened?
In recent years, there has been a shift from "defined benefit" schemes—the gold-standard final salary pensions that guarantee a set income for life—to "defined contribution" schemes, where the payout depends on contributions and investment returns. As wages have stagnated and housing costs have swallowed more take-home pay, the surplus cash needed to top up a private pension has evaporated for many households.
Paul Lewis, presenter of Money Box on BBC Radio 4, explains: "That's the tragedy of auto-enrolment. Minimum contribution levels are set to make schemes affordable for employers. It's a great idea, but it's simply not enough. These funds will keep you off means-tested benefits, which is good news for future governments, but they won't be enough to live on decently."
Why Are We Neglecting Our Pension Pots?
Many people find pensions complicated and inaccessible. Elizabeth Anderson, a business and financial journalist, says: "People think it's something complicated, whereas effectively it's just a savings pot." The cost of living also plays a role—locking money away until age 55 is difficult when people need cash now.
According to the Resolution Foundation, the poorest working-age families have seen their incomes fall by £1,800 per year since 2021-22. Anderson is particularly surprised at the low number of self-employed people contributing to a pension, noting that it is tax-efficient: "If you put £10,000 of earnings into a pension, the whole lot goes in. If you took it as income, you could lose almost 50% in tax and national insurance."
What Should You Be Doing?
Paul Lewis offers the impractical advice of starting to save earlier. However, there are practical steps: resist opting out of workplace pensions, consider contributing extra to trigger employer matches, and for the self-employed, a stakeholder pension with capped charges and a minimum monthly contribution of £20 is worth considering.
The government-backed MoneyHelper website provides advice, calculators, and expert appointments. Additionally, a list of 26 apps and tools can help with overall money planning.
What Should the Government Be Doing?
Pensions Commissioner Jeannie Drake said the final report will address securing adequate income in later life. Lewis suggests real reform is a tough sell: "It is almost impossible to make employers pay more right now with so many extra costs." The report suggests ministers face a brutal three-way choice: hike taxes to fund a growing elderly population, force higher contributions from individuals and employers, or further raise the retirement age. With four in 10 people under-saving, doing nothing is not an option.
Anderson advises: "The first easy step is to find out exactly how much you have. If people check, they might have a pleasant surprise, especially if compound interest has helped it grow."
