State Pension age Review: the £5trn bedrock of pension adequacy

The State Pension age (SPa) Review can be the start of improving pension adequacy if the government balances long-term sustainability with intergenerational fairness claims Hymans Robertson in a new paper outlining its response to the SPa Review consultation: Adequacy begins with SPa. While the State Pension age affects the cost of the State Pension, the review should not be primarily about cost control, says the leading pensions and financial services consultancy. It argues that the review should provide clarity on the government’s vision for the future of the State Pension, with consideration also given to eligibility, if adequacy is to be tackled with intent.

Commenting on the importance of the State Pension age Review, Calum Cooper, Head of Pensions Policy and Innovation, says:

“At over £12,500 a year from next April, the State Pension remains a cornerstone of adequate retirement income. Confidence in its future is a vital bedrock of financial independence and dignity in later life. That means adequacy for the majority can only begin at SPa. However, in its current form it’s unsustainable. The government must develop a clear framework to build confidence in the future of the State Pension. The scope of the review should consider not just cost, but who gets the State Pension and whether means testing is appropriate.” 

Commenting on the need to address the State Pension age as part of a sustainable social contract between generations, Calum adds:

“Pensions are built on the foundations of a social contract where each generation should expect to be no worse off than previous generations. People should expect to receive their State Pension for no less time than their parents or grandparents and this is currently for about a third of their life. It’s clear from ONS data that life expectancy is improving which means future generations would receive the State Pension for longer. If the state pension rose by a year every 10-15 years people would still receive the State Pension for roughly a third of their adult life. On this path we could see it rise to 68 in around 2040, 69 in 2050 and 70 in 2060.  

“With any changes to the State Pension age, a long planning horizon is crucial. Ideally this would be at least 10 years, to enable individuals and employers to have time to prepare.”

Commenting on the need for clarity around the funding of the State Pension, Calum continues:

“If this review brings clarity on the goal of the State Pension, it can shape how, and when, the State Pension is funded so it is resilient to an ageing society. A move away from the unsustainable triple lock is fundamental. Alongside National Insurance contributions, ring-fenced funding could come from pensions tax reform without impacting people’s retirement incomes. If funded in a balanced long-term way this would both improve the UK’s demographic resilience and boost UK investment, which is desperately needed. For example, £6bn a year invested for all newborns would be enough to pay for their State Pension by the time they reach SPa. This level of UK investment across a generation (c£150bn+) would be transformational for UK investment, growth and demographic resilience.

“There are other ways in which the increased cost of the State Pension can be tackled, such as automatic adjustment mechanisms that are used in other countries such as Germany and Finland. If these methods are adopted they must be explained clearly to the public to restore confidence in the State Pension and allay concerns.”

Adding comments on the importance of looking at retirement income overall, in the context of the economy, Calum says:

“Beyond the State Pension the government also has a duty to help ensure people have a sustainable retirement income. For example, there should be financial incentives to discourage premature cashing-in of workplace and private pensions, while welfare incentives and training should encourage continued work. This is a chance for the government to make changes that will be vital for economic growth in an ageing population. But, it must avoid cliff edges. Any dramatic, immediate changes, deny people time to adapt which risks putting a sledgehammer through the confidence that remains in the State Pension. This is especially amongst the younger generation where nearly half believe they won’t receive any state pension*. Pensions adequacy is built on the foundations of the State Pension so adequacy begins at the State Pension age.”

*PPI research shows that 46% of Gen Z claim that they won’t receive any state pension and 31% believe it will be abolished (https://www.pensionspolicyinstitute.org.uk/media/sihn1rfm/20250226-the-concerns-of-gen-z-final.pdf)

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