In its manifesto published prior to the 2024 general election, The Labour Party aligned its policies behind a one-word promise of change.

After a year in power, the spotlight recently turned on pensions, with greater clarity being provided on pre-election pledges to introduce “reforms to workplace pensions to deliver better outcomes for UK savers and pensioners” and take steps “to improve security in retirement”.

So, what has the government announced, what will be the impact on the pensions landscape, and what are the implications for savers and employers?

Addressing savings shortfalls

The main headlines were delivered by Liz Kendall, Secretary of State for Work and Pensions, in a speech on 21 July. In it, she announced the revival of an independent commission on UK pensions, which will consult with business and employers on proposals for reform.

The government said the reinstatement of the Pensions Commission (which helped bring about the introduction of auto-enrolment following its last report in 2006) is being driven by projections that those retiring in 2050 will be worse off by £800 a year, having accumulated lower private pension wealth. In total, almost 15 million people are thought to be under-saving for retirement, with 45% of working-age adults saving nothing at all into their pensions.

This issue is particularly acute among certain groups including the self-employed, over 3 million of whom are not saving to support themselves in later life. The government also highlighted the significant gender gap in private pensions, pointing to the fact that a woman could typically expect to receive income of just over £100 per week compared with just over £200 for a man.

Re-evaluating auto-enrolment

It will take time for the commission to consult on all the issues at play and develop suggestions for where improvements could be made. A possible area that could be targeted is the auto-enrolment system.

This has been a major success in boosting the numbers of people saving into workplace pensions, with more than 22 million currently making contributions compared with over 10 million when the system rolled out in 2012. However, the average contribution rate as a percentage of total pay has fallen over the same period, according to data from the Department for Work & Pensions (DWP).

Commentators have speculated that this could lead to proposals to increase minimum contribution rates, which currently stand at 8% – made up of an employee contribution of 4%, a 1% government contribution in the form of tax relief, and a 3% employer contribution.

Discussions also surround the age at which workers are auto-enrolled into workplace pension schemes, which is currently set at 22. Some in the industry have advocated for the UK to follow countries such as Australia and Canada in lowering the age threshold to make auto-enrolment available from 18.

Escalating pension age

At the other end of the age spectrum, the government also announced a review into the state pension age, which is required every six years under obligations in the Pensions Act 2014. Currently, the state pension can be drawn by both men and women from the age of 66. Between 2026 and 2028, a phased increase will ultimately see this rise to 67.

A further increase to 68 is scheduled to come in by 2046, but there are questions over whether this could be implemented under a shorter timeframe and whether the age threshold could rise further in the future.

A key influence on these potential changes is the pensions ‘triple lock’, which guarantees that the state pension increases by the higher of inflation, average earnings growth, or 2.5%. The government has said it is not reconsidering its commitment to the triple lock, despite the growing strain it is forecast to place on the public purse.

According to the Office for Budget Responsibility (OBR), the cost of the state pension will represent 7.7% of the economy by the early 2070s from its current figure of around 5% or £138bn.

Further increases to the state pension – currently at £11,973 per year – would also push it closer to the standard Personal Allowance of £12,570, potentially drawing people into the scope of Income Tax.

Uncertain outlook

Separately, it has also been suggested that the government could look to make changes in other areas related to pensions in the wider context of balancing the public finances. Earlier this year, HMRC published research (commissioned by the previous government) highlighting employer attitudes to removing tax exemptions for workplace pensions schemes administered through salary sacrifice.

There are no indications from the government that change is planned in this area, but experts have suggested that the mere existence of the research indicates it could be on the agenda.

With many such variables at play, it is easy to see why people feel unsettled by the shifting pensions landscape, whether you’re putting financial plans in place for later life or fast-approaching your retirement years.

Reassurance can be found in the form of expert guidance and informed professional advice – potentially stabilising forces that can help you navigate your way to the future you want in the face of inevitable change.

This is our understanding of the proposals so far and these may be liable to change as further regulations are introduced. The information contained within this communication does not constitute financial advice and is provided for general information purposes only. No warranty, whether express or implied is given in relation to such information. Vintage Corporate or any of its associated representatives shall not be liable for any technical, editorial, typographical or other errors or omissions within the content of this communication.