Pensions Are Not Fit for Purpose Reform Is Needed

For most workers a pension is a vague faraway thing; any emotion is just about the cost of saving. The lack of interest is perhaps understandable - the world may look very different when retirement comes. What might a pension mean in the decades ahead?

Even now, change is imminent, with the Pension Schemes Bill currently working its way through Westminster and investment prospects also uncertain. And next month, many of those with pensions pots or already receiving pensions can expect to be hit in the Autumn Budget.

All this political attention is not addressing public distrust - the more the pensions landscape changes, the more that workers wonder whether the pensions concept will be relevant when they retire. Can individuals reasonably plan for retirements that may begin forty or fifty years in the future if the policy and tax framework undergoes constant revision? And if today's retirees see tax rules changed retrospectively, why should today's workers trust that rules won't change again before they retire?

Research by The Institute and Faculty of Actuaries has identified a troubling erosion of confidence in pension provision. This suggests that almost half of young workers believe the state pension will not exist when they reach retirement age. Long-term financial planning looks more like an exercise in speculation rather than prudent foresight. What Britain needs is not another round of tinkering with rules and tax but a fundamental reconceptualisation of pensions with cross-party commitment to policy stability.

While Westminster drives pensions policies, the impact matters for Scots. Scotland's population is ageing faster than most regions of the United Kingdom. Projections show substantial increases in the proportion of residents beyond state pension age while the working-age population stagnates. This places particular pressure on both state pensions and social care. An ageing population is not merely a pensions challenge but interconnects with healthcare, housing, and labour force participation.

The current system of automatic enrolment into pension schemes, introduced just over a decade ago, deserves credit for bringing millions into pension saving who might otherwise have had nothing. Over ten million UK workers now contribute to workplace pensions who previously did not. Yet the minimum contribution rate of 8%, split between employer and employee, is widely acknowledged as insufficient for a comfortable retirement.

Someone contributing at this baseline level throughout a full career might accumulate a respectable-looking pot, but rarely provides the quality of life people imagine. To achieve a 'moderate' retirement living standard, workers on average earnings must save a far higher percentage of income than 8%. A 'comfortable' retirement living standard might cost double the level of 'moderate'. Yet saving for the future looks like a luxury to those whose household budgets are already under pressure from rising food costs and energy bills.

Compounding these challenges is fundamental uncertainty surrounding investment returns over the long time horizons relevant to younger workers. Assumptions made in projecting long term investment returns come from historical experience that may be a poor guide the future. Scotland's economy, like Britain's generally, faces structural transitions including decarbonisation, technological disruption, and demographic change - with uncertain long-term impact on asset values. A worker in their twenties today will be impacted by investment conditions prevailing in the 2060s and 2070s.

This uncertainty is amplified by the treatment of pensions as political football rather than social infrastructure requiring long-term stewardship. The state pension is now the second largest expense for the UK government, after healthcare, and the bill has risen steadily. The higher costs in recent decades are largely due to increased life expectancy, on top of the annual rises built into the triple lock that was introduced in 2011. Arrangements for the state pension look unsustainable but there is little national debate about the options.

The political reality is that pension reform has become toxic. Politicians believe that proposing significant pension changes risks electoral suicide. Yet the demographic arithmetic is unforgiving. People are living longer, birth rates are falling, economic growth is slowing and the ratio of workers supporting each retiree continues to decline. Trust, once broken, is painfully slow to rebuild. Scepticism about pensions amongst younger workers reflects rational assessment of the recent trends, rather than mere cynicism. Rebuilding trust requires stable, predictable policy maintained across parliamentary terms. That means transparency about challenges and trade-offs. We need innovative solutions that acknowledge changed employment patterns, from gig work to portfolio careers.

The UK government should give clear public messaging around minimum pension saving levels, making explicit that current automatic enrolment minimum contributions represent a floor, not a target, and are insufficient for comfortable retirement. At present, there is no consistent public narrative or nationally recognised amount to help individuals understand how much they need to be saving into their pension each month The state pension and minimum workplace contributions alone will not provide the retirement most people hope for.

The present pensions system exacerbates inequalities. More work is needed to examine how parental leave, career breaks, and part-time working affect pension-building, and considering ways to mitigate these impacts. There is a need for better support for employees at key life events, with clear information about pension implications of their choices. It means moving beyond mere legal compliance toward genuine engagement with employees' long-term financial wellbeing.

The self-employed also face challenges in retirement. Scotland has a vibrant entrepreneurial sector, Yet self-employed workers are significantly less likely to have adequate retirement savings despite often working longer hours than employees.

The fundamental challenge is making pensions relevant and trustworthy for people whose retirement feels impossibly distant. It may be that we need to reimagine pensions more as lifelong financial resilience, not depending solely on state provision. This might involve more flexibility to access pension savings for life events like home deposits, with corresponding adjustments to contribution requirements.

Retirement is no longer a clearly defined life stage. The responsibility for retirement security has been shifting from institutions to individuals but more advice is needed for people to understand the risks. Westminster's Pension Schemes Bill looks like a missed opportunity