The state pension is a cornerstone of the UK’s welfare system, designed to provide a minimum level of income in retirement. Its original purpose was to prevent poverty in old age and to recognise the contributions individuals make throughout their working lives.
Over time, it has evolved into a near-universal entitlement, often seen as a guaranteed component of retirement income regardless of personal wealth or need. This evolution has taken place against a backdrop of rising life expectancy, changing employment patterns and increasing expectations around retirement living standards.
Yet the fiscal context has shifted dramatically. The pension system now faces pressure not only from an ageing population, but also from the growing demands on public services and a taxpayer that is under strain.
Bringing later-life care into the picture
The state pension is under growing pressure — not simply because there are more pensioners, but because their needs are becoming more complex. Retirement income is increasingly tied up with health and social care, as longer lifespans bring a higher likelihood of costly, long-term care needs among pensioners.
Any reform must consider how retirement income interacts with health and social-care funding
The traditional assumption that inheritance can fund later-life care needs has weakened in the last decade. Nowadays, rising care costs often consume housing wealth before it can be passed on, meaning families, savings, pensions and property are all being drawn into meeting care expenses.
At the same time, local government finances are under strain, with social care already accounting for a large share of council tax spending.
Without reform, this burden will continue to grow. Any credible plan for the future of pensions must therefore also address how later-life care is funded to protect not only pensioners, but to relieve pressure on local services and ensure fiscal coherence of the benefit.
To address these challenges, several policy shifts may be necessary.
Tax contributions in retirement
One likely reform is the extension of tax contributions to pensioners, including on pension income and earnings. This would reflect the principle that those with sufficient means should continue to contribute to public services, regardless of age.
Structured means testing
Rather than relying on targeted benefits like Pension Credit, a more integrated form of means testing could be introduced. In some European systems, such as those in Scandinavia, pension entitlements are adjusted based on income and assets.
These models maintain a universal base but ensure that additional support is focused on those who need it most.
State pension remains a critical income for retirees, report shows
Integrated planning across systems
The pension system cannot be reviewed in isolation. Any reform must consider how retirement income interacts with health and social-care funding. This may involve new models of co-payment, insurance, or savings schemes that bridge the gap between income and care needs.
Strengthen the minimum pension guarantee
To protect those unable to work longer or save more, the base level of pension income should be strengthened and indexed to earnings.
This would ensure that the state pension continues to provide a meaningful floor, especially for those with limited private savings or interrupted work histories. It would also help maintain public confidence in the system’s fairness and adequacy.
The political and market realities
The political challenge is significant. Pensioner benefits are electorally sensitive, and any party proposing significant change will almost certainly face resistance.
Unfortunately, this creates the problem of short-term fixes and delayed reforms where difficult but necessary decisions on the future of the state pension are kicked into the long grass, and incremental adjustments are eventually followed by a rise in the state pension age (SPA).
Raising SPA is often seen as the most straightforward fiscal lever to pull to solve the state pension conundrum, and proposals to increase it to 75 have surfaced.
Pension reform will be judged not only on its social fairness but on its economic soundness
However, while this may be an easy win for the Treasury, it risks disproportionately impacting people in physically demanding jobs, in poor health, on lower incomes, or those simply unlikely to live that long. For many, the idea of working into their mid-70s is neither realistic nor fair.
With many pensioners already facing a retirement income shortfall with the state pension at its current ‘triple-locked’ level, if SPA rises, individuals will need to rely far more heavily on personal pensions, workplace schemes, or other assets to fund the years between stopping work and receiving the state pension.
This would place a heavier burden on those with limited savings and risks widening inequalities in retirement outcomes, particularly in light of higher costs of living and the gender pensions gap. It’s critical that any reform acknowledges this reality and ensures that those unable to work longer or save more are not left behind.
Any plan must also be robust enough to satisfy financial markets. The UK’s fiscal credibility is under scrutiny, and pension reform will be judged not only on its social fairness but on its economic soundness.
Ultimately, a coherent, long-term strategy that integrates pensions, care and taxation will be essential to maintaining investor confidence and public trust.
David Brooks is head of policy at Broadstone
