By Matthew Arends, Head of UK Retirement Policy, Aon
While the Turner Commission led to widespread participation in pension savings by employed workers, the 2025 Commission, under the leadership of Baroness Jeannie Drake, is tasked with improving retirement adequacy among UK workers. The reasons for this are clear - even those saving into a pension are generally not saving enough for a reasonable retirement.
The challenges and considerations
In this analysis, we address six challenges that the Drake Commission will need to overcome if it is to replicate the success of the Turner Commission. It will not be an easy path to tread; as described below, the Commission’s terms of reference limit the areas that can be commented on and simply saving more is not necessarily the right answer for everyone.
1. Limited scope to address reform of the State Pension
The Commission’s terms of reference instruct it to “build on the foundation of the State Pension” rather than to undertake a comprehensive review of the State Pension itself. This restriction is noteworthy because, for many pensioners, the adequacy of their overall retirement income is largely determined by the level of the State Pension. By limiting the scope to private pension provision and wider savings, the Commission may be unable to address the most significant driver of retirement outcomes for those at greatest risk. This could result in recommendations that do not fully tackle the root causes of pensioner poverty or inadequacy - and leaving some of the most pressing issues unresolved.
2. Defining pension adequacy is complex
The question of what constitutes an ‘adequate’ pension is inherently complex, as it depends on a wide range of individual circumstances, including earnings history, home ownership, family situation, state of health, and personal spending needs. A related question is whether to define ‘adequacy’ by reference to replacement ratios (as has tended to be done historically) or by reference to absolute spending levels, such as Pensions UK’s Retirement Living Standards. The latter is arguably more relevant to lower earners whereas the former could be more relevant to higher earners. Nuanced, flexible solutions will be needed, tailored to the diverse needs of different groups within the population.
3. What is retirement adequacy for low-income groups?
The Commission is specifically charged with considering how to improve retirement outcomes for those on the lowest incomes and most at risk of poverty or undersaving.
For these individuals, the State Pension tends to be the main source of retirement income, often providing a reasonable ‘replacement ratio’ for the lowest paid (the State Pension provides almost 90 percent of the ‘minimum’ Retirement Living Standard for a single person living outside London). However, simply increasing auto-enrolment minimum contributions risks requiring low-income workers to contribute more than may be necessary (either directly or via employer contributions) to private pensions, potentially reducing take-home pay during their working lives. This could be counterproductive if those contributions do not meaningfully improve their retirement security and instead cause financial strain in the present. Policy solutions should be carefully calibrated to avoid imposing unnecessary savings burdens on the already financially vulnerable.
4. Seeking long-term sustainability and affordability
One of the central challenges facing the UK State Pension system is its long-term sustainability, particularly with an ageing population. As the proportion of older people increases, the cost of providing the unfunded State Pension will rise, placing greater pressure on the working-age population to finance these obligations through taxation. The analysis raises important questions about how affordable the current system will be in 10 years’ time and beyond, and whether further reforms will be required to ensure intergenerational fairness. With diminishing defined benefit (DB) pension savings, the emergence of new pension models, and the inexorable demographic shift, regular assessment of the system’s affordability is essential to avoid future crises. One action that could assist would be for the Government to communicate more actively the existing option to defer taking the State Pension. This would provide the individual with a larger pension that begins later and - in aggregate - would also delay payments of State pensions, which would benefit the economy.
5. Tackling broader financial literacy and engagement issues
Low engagement with pensions and poor financial literacy are persistent problems in the UK, contributing to inadequate retirement saving and poor decision-making. Many individuals struggle to understand their pension options, the importance of saving early, and how to manage their finances for long-term security. While there is a clear role for government and employers in promoting financial education, the Commission’s remit is focused narrowly on pensions policy. That potentially limits its influence over these broader issues. Nonetheless, improving financial literacy and engagement should be seen as a complementary priority, as it underpins the effectiveness of any pension reforms and helps individuals make informed choices about their retirement, in conjunction with reasonable default outcomes for individuals who do not make a choice.
6. Ensuring timely review and ongoing oversight
Given the rapidly changing landscape of pensions, with new developments such as pensions dashboards, evolving regulations, and demographic shifts, it is vital that the pensions system is subject to regular and timely review. We recommend that the next pensions commission should be convened within 10 years of the current one, rather than waiting decades as happened previously. This would ensure that emerging challenges are promptly addressed.
And the challenges are significant, including the decline of defined benefit pensions, the rise of collective defined contribution (CDC) schemes, technological advancements, and the increasing age profile of the workforce. Ongoing oversight and periodic commissions are essential to maintain a pensions framework that is strong, fair, and sustainable for future generations.
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