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The second Pensions Commission was established in July 2025, to help shape a pensions framework which is "adequate, fair and sustainable". Its interim report is diagnostic rather than prescriptive, but a number of clear themes emerge.
Auto-enrolment: more to be done
The report confirms that core elements of the current system are working as intended. The flat-rate State pension has been a success; now an "indispensable foundation", it accounts for more than three‑quarters of retirement income for those at the lowest end of the distribution. And auto-enrolment has driven workplace participation up to around nine in ten eligible employees.
At the same time, the UK faces a serious adequacy challenge. Around 15 million working‑age individuals are projected to miss their target replacement rate, potentially rising to 19 million on some assumptions. The trend is in the wrong direction, with the proportion of people under-saving expected to increase over time.
Contribution levels are central to that picture. Many savers remain at or close to auto-enrolment minima, and for three‑quarters of employees, contribution rates are below 12%.
Participation gaps also persist. The position of the self‑employed stands out: only around 4% of those with solely self‑employed income are contributing to a pension. Outcomes are also weaker for groups including women, carers, disabled people and some ethnic minorities.
The adequacy test: a shift in thinking?
The Commission raises questions about how adequacy should be measured going forward.
The traditional focus on replacement rates is not discarded, but the report notes its limitations. Low-earners may meet replacement‑rate targets (because the State pension replaces a large share of earnings) while still having low absolute incomes.
The Commission suggests that a hybrid approach, combining replacement rates with minimum income benchmarks, may be more appropriate. That would represent a subtle but significant shift in how success is defined.
Beyond compulsion: saving more, working longer, and the wider system
The Commission signals that improving outcomes is likely to require a holistic approach.
First, it points to the need for greater levels of voluntary saving. For many, especially low- and median-earners, the "third pillar" envisaged by the original Pensions Commission "has failed to materialise".
Secondly, the Commission is clear that people will need to work for longer. In the UK, employees tend to leave the workforce early. The Commission's numbers demonstrate the impact: a saver who retires at 57 rather than 66 might reduce their workplace pension income by more than 60%.
The report does not take a position on State pension age, nor does it engage directly with the Government's ongoing SPA review. It does, however, highlight the sustainability pressures, including demographics and rising State pension expenditure.
A further theme is the significance of housing costs. The assumption that most retirees will be homeowners is less certain for future cohorts, with a growing number of pensioners in the rented sector. The Commission suggests that this may necessitate changes to the wider benefits framework, given the interaction between housing costs and pension adequacy.
Decumulation in the spotlight
The most immediate policy implications may lie in decumulation.
The evidence highlights material risks. Around half of pension pots are accessed via full cash withdrawal, and withdrawal rates are often at levels which will exhaust savings within 10 years. Three-quarters of DC savers over 40 have no clear plan for accessing their benefits.
In that context, the Commission's call for "stronger guardrails" is unsurprising. The report references the forthcoming "guided retirement" regime, but stops short of treating it as a complete solution. There is a clear sense that further policy development may be needed.
That raises a question for the Government. If decumulation is under active consideration by the Commission, there may be a case for further iteration before the guided retirement regime is finalised and implemented.
The road ahead
The Commission's final report is not due until spring 2027, and the Government has indicated that any significant legislative change would be for a future Parliament. That gives schemes and employers some breathing space.
But time is a factor. Retirement outcomes depend substantially on when saving begins. The Commission's modelling shows that an individual who starts to save at 40 may need to contribute around 13% of pay to meet their target replacement rate, as opposed to 7% if saving starts at 22.
No one wants reform to be rushed – and if minimum contributions are to be increased, employers will need time to plan and prepare. But the sooner changes are implemented, the greater their impact.
That is a point which the interim report brings out clearly, and one which is likely to shape the debate as the Commission moves towards its final recommendations.
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