LONDON — Britain’s got a giant pensions problem.

Nearly half of its future retirees won’t have enough money to live on. But it’s a politically nightmarish issue to solve.

With no money to increase public pensions and seemingly no political space left to get businesses to pay more into private ones, the government instead hopes reviving a Tony Blair-era commission to delve into what’s gone wrong and how to fix it will provide a solution.

Launching the plan Monday, Secretary of State for Work and Pensions Liz Kendall warned that retirees face “incomes that are too low, risks that are too high, and a system that is too unequal,” and said her Labour government “will not duck the urgent need for reform.”

But to many, the British government has done exactly that — before the commission is even set to begin its work, let alone report in 2027.

“They’ve kicked the can down the road,” one pensions industry executive said.  

Small firms squeak

Kendall’s Pensions Minister, Torsten Bell, confirmed at the 11th hour there would be no increase to auto-enrolment rates — the percentage of employees’ salaries that automatically go into a pension with funds invested and built up for a retirement nest egg.

As it stands, the minimum contribution to a workplace pension is 8 percent, split between employee and employer, with companies required to add at least 3 percent.

The City of London has long called for an increase to 12 percent, which would bring the U.K. in line with Australia — although, Down Under, companies contribute the full amount to a fund without employees losing out in their pay checks.

The banking and pension industry see higher contributions as a major way to improve the currently dire prognosis for future pensioners — while also ensuring more money enters the City — and they’re disappointed the change has been ruled out.

“Total contributions will have to rise if we are to emulate the successes of, for example, Australia and Canada,” said Miles Celic, chief executive of trade body TheCityUK.

But business bodies fear a hike would devastate small firms, which complain they’ve already borne the brunt the chancellor’s increase to National Insurance Contributions, announced last year. The Federation of Small Businesses, seeing the writing on the wall in June, warned pension contribution hikes to 12 percent would “see small firms raise prices, cut jobs or slash profits.”

As a result, Bell told the Financial Times in a Sunday interview: “We are ruling out any increase in pension contributions in this parliament. I want everyone to focus on what is the right, long-term answer.”

As with many issues bedeviling Keir Starmer’s government, if the commission calls for more investment, it’s not clear where the money will come from.

Commissioning work

Figures published by the DWP Monday meanwhile lay bare the scale of the problem.

Retirees in 2050 are on course to have eight percent less in private pension income than those retiring today. More than four in ten working-age people, equivalent to 14.6 million individuals, are undersaving for retirement.

Lower earners, the self-employed and some ethnic minorities are particularly at risk of having little or even no funds for retirement, with three million self-employed not saving into a pension.

The introduction of auto-enrolment in 2012 — which came about after the last pensions commission under the Blair government wrapped up in 2006 — has vastly increased the numbers of individuals saving for retirement. But around 50 percent of workers in the private sector make only the minimum 8 percent contribution.

Pensioners who retire and find they’re lacking sufficient funds will be even more reliant on the state pension, which is currently £230.25 per week. The commission’s been told to stay away from the “triple lock” — a Tory-era rule which sees the state pension rise in line with the highest of inflation, wage increases or 2.5 percent every year. Labour has committed to keeping that lock in place during this parliament, but not the next if it wins another term.

The commission is also effectively unable to recommend changes to auto-enrolment contributions. It’s been told not to look at generous pension tax reliefs. And the government is separately reviewing whether the state pension age should rise again.

Ministers have shelved plans to increase auto-enrolment to 18-to-20-year-old savers until the commission reports back in 2027, a DWP official said. That was first legislated for in 2023 under the last government, and would get younger adults onto the retirement savings ladder, but was never implemented.

With Kendall and Bell imposing so many stipulations on the commission, it’s been hamstrung before it’s even got to work, according to former Coalition-era Pensions Minister Steve Webb.

“They have had one hand tied behind their back from the outset,” Webb said. 

“Central to any plans for the future of retirement incomes is a view on how the state pension will contribute, yet they have been told they are not to comment on the future indexation of the state pension and the triple lock policy in particular.”

‘Complex barriers’

The revived commission will be led by Jeannie Drake (a member of the original one launched in 2002), Ian Cheshire and Professor Nick Pearce. Over the next 18 months it will explore the “complex barriers stopping people from saving enough for retirement,” and its recommendations will help Bell “build a future-proof pensions system that is strong, fair and sustainable.”

According to Rachel Vahey, head of public policy at AJ Bell, the commission will likely have to think outside the box to come up with an approach that earns retirees more without hitting businesses. “The solution could be higher contribution rates,” she said. “But new plans for demanding employers stick their hands in their pockets once more, so soon after the national insurance hike, will be deeply unpopular, even if Labour has ruled out increasing pension contributions for employers in this parliament.”

Ministers will at least have 18 months’ breathing room before the commission issues its recommendations.

And the government appears to be well aware of the challenge it has on its hand, with Monday’s review already delayed by over six months.

“Reforming the welfare state is never easy and always contested,” Kendall said.