Guidance

Pensions Commission: Terms of Reference

Published 21 July 2025

1. Background

The first Pensions Commission (2002 to 2006) delivered real progress, setting the course for a fairer, simpler State Pension and Automatic Enrolment (AE), getting Britons saving for their own retirement once again. But creating savings pots is not the same thing as delivering a pensions system. As things stand, future pensioners will face incomes that are too low, risks that are too high, and a system that is too unequal. So now is the time to finish the job of delivering financial security in retirement and supporting those approaching retirement.

AE has meant millions more people are saving something toward their retirement, but if we continue as we are too many will miss out on a financially secure retirement. Put bluntly, private pension income for individuals retiring in 2050 could be 8% lower than those retiring in 2025 – undermining a central measure of societal progress.

Four in ten working age people in Great Britain are not on track to meet their target replacement income (roughly two-thirds of their pre-retirement income for an average earner) during their retirement, while 3-in-4 people are set to miss having a ‘moderate’ standard of living in retirement (estimated to be around £31,000 a year by the PLSA). These measures of adequacy do not include the cost of housing for pensioners, increasing numbers of whom are expected to be in rented accommodation or still paying off a mortgage during retirement, putting significant additional strain on pensioner incomes and the state.

The shift from predominantly Defined Benefit (DB) to Defined Contribution (DC) pensions, alongside the emergence of Pension Freedoms, has also fundamentally shifted risks from employers to individuals. Alongside investment return risk, people saving into DC pension schemes now retire with a savings pot rather than a pension income for life. This leaves them facing longevity risks that are very difficult for any individual to manage in isolation, when one-in-ten men aged 66 years old today could reach the age of 96 and one-in-ten women of this age could live to 98.

The result is people are now facing complex decisions about how to best utilise a DC savings pot, and often without much help: forthcoming research shows that in the last 12 months only 16% of 40 to 75 year olds used a regulated source of advice or guidance. Evidence to date shows that over half of pots are accessed as cash, increasing the risk that their savings will not provide sufficient financial support throughout retirement. The measures in the Pension Schemes Bill will start to address this – but there could be scope for further innovation.        

There are also significant inequalities in retirement outcomes, with lower earners, women, carers, and the self-employed all at greater risk of low living standards in retirement. For the self-employed, pension participation rates have dropped from 50% in the late 1990s to less than 20% at present. While we celebrate the success of AE, we must not forget that only around half the working-age population are currently saving into a pension.

The world has also changed significantly since the work of the first Pension Commission. The changing labour market means that more people are in insecure work and many more people are now self-employed, with real implications for retirement outcomes. Lower rates of home ownership have also created challenging conditions for future pensioners.

The introduction of Pension Credit reduced pensioner poverty significantly under the last Labour Government, but pensioner poverty has risen again in recent years, not least for older and single pensioners. Ill-health and disability are also increasing, with too many older workers leaving the labour market before State Pension age. These shifts combine with longer term demographic trends: the pensioner population is expected to increase by over 50% between 2024 and the 2070s, whereas the working age population will only increase by over 10%. Expenditure on State Pensions is projected to increase from 5.2% of GDP in 2024 to 2025 to 7.9% by 2073 to 2074.

Two decades on from the first Pensions Commission it is time to finish the job, delivering financial security in retirement and supporting those approaching retirement through a pensions framework that is strong, fair and sustainable. We have revived the Pensions Commission to take on this task.

2. Scope

The Pensions Commission will therefore consider the long-term future of our pensions system, including:

• outcomes and risks for future cohorts of pensioners on current trajectories through to 2050 and beyond
• how to improve retirement outcomes, especially for those on the lowest incomes and at the greatest risk of poverty or undersaving
• the role of private pension provision and wider savings, building on the foundation of the State Pension, in delivering financial security in retirement and supporting those approaching retirement
• the long-term challenges of supporting an ageing population
• proposals for change beyond the current Parliament, that build on the measures in the Pension Schemes Bill and ensure Britain in the mid-21st Century delivers financial security in retirement through a pensions framework that is strong, fair and sustainable

3. Governance

The government has appointed Baroness Jeannie Drake, Sir Ian Cheshire and Professor Nick Pearce as commissioners who are responsible for steering the work of the Pensions Commission and ensuring that it meets the Terms of Reference. The commissioners should consider the views of a wide range of stakeholders to build an evidence base from which to generate consensus around improving the UK pensions landscape.

In line with section 27 of the Pensions Act 2014, the government is also launching the next State Pension age Review. The Department for Work and Pensions (DWP) Secretary of State has appointed Dr Suzy Morrissey to prepare an independent report on specified factors relating to State Pension age and has commissioned the Government Actuary’s Department to prepare a separate report, including on the proportion of adult life in retirement. The findings from both reports will be considered as part of the Government’s State Pension Age Review and these findings may also be shared with the Pensions Commission as it considers the longer-term future of the pensions system as a whole.

4. Timeframe and Deliverables

The Commission will submit its final report to the government in 2027. The report(s) will be published on the GOV.UK website.