UK pension shake-up: Chancellor Reeves plans review, focus on retirement contributions and adequacy
Chancellor Rachel Reeves is set to announce a complete crackdown of UK pension later this month. Her statement is expected to include plans to oversee the amount, companies and their staff, set aside for retirement.
A commission to lead the review is also in the works, as per reports. The long overdue review would include pensions adequacy, auto-enrolment rates along with the state pension and retirement savings of the self-employed.
The probe was first announced by Reeves in July 2024 and was supposed to launch by the end of the same year. However, an angry backlash to the chancellor’s autumn Budget triggered a delay. Employers were set to face a £25 billion rise in National Insurance contributions.
Chancellor Reeves believed that the UK pensions sector is steadily reforming despite doubts from the government. They are, however, aware of the possibility of another opposing reaction from employers, already facing the burden of the Budget.
Focus of the review
The Reeves administration shared earlier this year in May, that the review of retirement adequacy would aim to improve outcomes for “future generations of pension savers”.
A report by the Institute for Fiscal Studies found that nearly 40% of private sector workers are at risk of inadequate retirement incomes. Around half of middle, and high-income earners aren’t on track to meet their “target replacement rate” which is a benchmark for maintaining living standards post-retirement.
Current retirement rules in place
Under current UK auto-enrolment rules, employees must contribute at least 8% of qualifying earnings to their workplace pension, with 3% coming from employers. However, experts warn this is insufficient for a secure retirement.
Self-employed workers are particularly vulnerable, with two-thirds projected to fall below the “minimum standard” pension income of £13,400 per person annually, as set by the Pensions UK trade group.
The government’s ongoing pension adequacy review is also evaluating the state pension, currently at £230.25 per week (£11,973 per year) for those with 35 years of National Insurance contributions. The state pension is adjusted yearly under the “triple lock” system, whichever is higher among inflation, wage growth, or 2.5%, a policy introduced in 2010 to preserve pension value.