A review of pensions adequacy that produces a target replacement rate is needed, policy researchers have told MPs, as concerns mount over future pension incomes and housing costs, amid reports the adequacy part of the Pensions Review has been put on ice indefinitely. Experts have also reiterated warnings about rising poverty levels among people in their 60s. 

Giving evidence to the Work and Pensions Committee on 18 December, pensions policy researchers and campaigners urged policymakers to be clear about what the aim of the state pension and the pensions system as a whole is and to conduct the delayed adequacy review to get there. They also warned against making changes without considering the implications first. 

Independent policy researcher Daniela Silcock said delaying the adequacy review would mean operating without a pensions income target for longer. It was reported last month that the chancellor has put part two of the Pensions Review on ice, though the government has not confirmed this.
   

   
“It is extra concerning that the pension review into adequacy has been delayed, because we do not have an established target at the moment. We need to figure out what we are aiming for and how to get there, and set a target and then aim for that. Without that, it is very difficult to do state pension policy; it is very difficult to do private pension policy. How can we make a decision about whether or not to maintain the triple lock when we do not know what we are aiming for?” she said. 

The adequacy review “is what we were hoping would lead to a target”.

Silcock also warned against making changes to the ‘triple lock’, which uprates state pensions by the highest of inflation, earnings or 2.5%: “Without a target, I think it is quite dangerous to take away the triple lock, because it is then unlikely to be reinstated. How do we then meet a new target?” 

A target replacement rate was aimed for by the Pensions Commission of the early 2000s, she noted.  The commission proposed pensions should replace 60-66% of median earnings, with 30% replaced by the state pension, 15-18% through auto-enrolment defaults, and another 15-18% from extra savings.
     

 
“Obviously, we are not saving that much. The Pensions Commission predicted that a lot of people would save 2% above the 8% minimum— that was stated by the commission,” she said, and “the government have said in a few different publications that they are looking for the state pension to provide 30%”. 

Silcock noted that the Pensions Policy Institute’s calculations arrive at a 26% replacement ratio for the UK state pension. 

“If we are developing a target, it is really important that we are clear about how we are making that calculation,” she said. 

This clarity is needed because there are different percentages being presented as the current replacement rate. The UK state pension currently replaces 30% of full-time median earnings, higher than it has ever been, argued Carl Emmerson, deputy director of thinktank the Institute for Fiscal Studies. 

This “is not a very generous system”, he added, saying “there is plenty of space for disagreement on what that level should be”. 

He also highlighted that while the level of earnings that is replaced by the state pension has gone up, this was largely because salaries had fallen in real terms, and that governments might not want to drive up the replacement rate by relying on poor economic conditions. 

The chief executive of the Centre for Ageing Better, Carole Easton, warned against making changes to pensions without first considering the impact not just on pensioners but those not yet retired.

“I would like to see any major decisions about pension age and pension entitlement delayed until there is a very thorough review of the implications of doing so," she said, noting that when the pension age went up by one year to 66, roughly 100,000 more people were pushed into poverty.

The researchers highlighted that pensioner poverty levels were lower than both those of children and people of working age.

However, particular groups are more affected by pensioner poverty. Alongside carers, people with a disability, people of Pakistani or Bangladeshi heritage, single pensioners and others, these groups include private renters – one that is set to grow, potentially causing a headache for future governments.

"If you are receiving the full new state pension as a new pensioner but are in private rented accommodation – as there are many areas, particularly in the south of England, where pensioners live and find that their housing benefits do not cover their full rent – that is essentially leaving their after-housing costs income below the standard poverty line,” Emmerson said.

“Private renters are a big red flashing light that we need to be worried about,” agreed director of policy and influencing at Independent Age, Morgan Vine.

A 2024 study by Independent Age found private renting in later life will treble to 13% by 2040, from an estimated 500,000 in 2022 to 2.2m in 2040.

Silcock said high levels of home ownership were a bubble created by right-to-buy and economic factors, suggesting they will not be repeated anytime soon. To make renting possible for pensioners without being pushed into poverty, they require affordable housing, she said.

“What we need to look at is more affordable housing, and then we would not have this problem with private rentals. That would immediately address a lot of the issues that we are going to see coming up with the increase of pensioners in the private rental sector,” she said.