30 Jul 2025

Who we can help: Where are retirement and pensions headed in the UK?

There was controversy recently as Reform UK’s deputy leader described public sector final salary (defined benefit) pensions as a “rip-off”. Many commentators believe that actually implementing the suggested withdrawal of public sector pensions would prove quite difficult for Reform UK, both politically and economically. However, this doesn’t alter the fact that public sector employees, roughly 17% of the UK workforce, are being promised pensions that have become completely unaffordable in the private sector. Moreover, the government has not set aside the investment capital required to fully support the future liabilities of these pensions, instead it uses current pension contributions along with tax revenues to fund the pensions – something which would be illegal for any private sector pension to do.

State pension payments face a similar pickle – although eligibility for the state pension is not guaranteed by the government. Current National Insurance Contributions are used to fund pensions being paid out now with nothing put aside to fund future pensions. OECD projections are expecting UK GDP growth of just 1.1% in 2025 and 1.0% in 2026, compared with 27% growth in welfare spending (including pensions, housing, disability benefits) between 2023/24 and 2029/30. Some may wonder if the state pension will eventually be at least partially means-tested? A more likely outcome is a combination of extending the age at which one is eligible for the state pension, and moving away from the triple-lock to increasing pensions in line with average earnings.

Despite uncertainties, when it comes to pensions and retirement, there are a few consistent facts worth noting: You are in charge; the numbers will get bigger not smaller; read the small-print; and beware the risk of not taking enough risk.

You are in charge

Very few people get their pension taken care of for them – certainly not by private sector employers, and soon public sector curtailment of access to Final Salary pensions may well be a reality. These days for most of us, our pensions are funded by contributions from our employer as well as ourselves + investment growth over time – costs and charges along the way. There’s a fair old slice of luck around what period of history you inhabit (for example on Wall Street, whether the roaring 1920’s or the depressed 1930’s – and there are similar examples in many other markets), but that’s why asset allocation and geographic diversification are important for exposure to varying risks and rewards. Your long-term investment strategy matters to the outcome, but the heaviest lifting is done by your contributions: how early you start, and how much you put aside for your future.

The numbers will get bigger not smaller

Life expectancy continues to rise – according to the Office for National Statistics (ONS) a 44 year old male in the UK has a 25% likelihood of reaching 93 years old, and a 10% chance of reaching 98 years old. And the expected costs of retirement are rising as well –  figures released by the Pensions and Lifetime Savings Association (PLSA) reveal that a comfortable retirement annual cost is now £43,900 per annum, which could require a pension pot of up to £800,000 alongside the state pension.

Read the small print

Many ‘retirement-focused’ financial products warrant careful scrutiny – including annuities, ‘lifetime incomes’, home equity-release loans, and various insurance products to cover later life or estate duties. All of these products are designed firstly to ensure the provider makes a profit, and only thereafter to cover the needs of the buyer. These products can be useful in specific contexts, but they should always be investigated with the support of someone independent from the provider who can help you take a careful look at the total benefits vs costs, as well as any terms or conditions that could be problematic.

Beware of under-risk

A recent speech from Sarah Pritchard, a senior executive at the FCA, noted of UK investors that “There is no such thing as no risk… We know that investors who don’t take risk lose out” (unfortunately the article on this is paywalled). This marks a growing recognition from the Chancellor down that many UK investors are over-weight in cash, and property (see our article on this ), and this can undermine their long-term financial health as well as reducing available funding for investments to help to grow the economy.

However, before blaming the availability of cash ISA’s or looking to goad pension providers into investments in private markets and the UK specifically, perhaps our politicians need to take a long hard look at the negative impacts of constant tinkering with UK pensions regulations and legislation, which have tended to undermine public confidence in pensions. The latest of these has been the announced intention to include pensions within estates for IHT from April 2027, although exactly how this will be achieved has not been clarified yet (and is not a simple matter for pensions administrators).

However, pensions in the UK are still among the most tax-effective investments available:

• Contributions are either pre-tax or if made from post-tax funds, they receive gross roll-up of 20% in recognition of the implied tax paid
• Investments within a pension grow tax free (dividends and capital growth are not taxed) – this tax free roll-up continues even after your pension has been accessed (“crystallised” pension funds)
• Withdrawals can also be tax-efficient on the way out – the first 25% of your investment (up to a limit of £268,275 – which is 25% of £1,073,100) can be withdrawn tax free
• If you made contributions as a 40% or 45% taxpayer, than you can claim additional relief on your tax return, and will also have saved the difference if you are able to later withdraw from your pension at a 20% income tax rate

Sadly, the most common fact is that many people in the UK have not saved enough, or are not on course to save enough for their retirement. Some research suggests that nearly 75% of the UK population are not on track to have the same living standards in retirement as they do while working.

What are your retirement plans? Do you have clarity about what you need to achieve your desired retirement lifestyle?

Download our free guide to retirement planning here: https://hoe-bridge-wealth.kit.com/guide-retirementplanning

If you’d like to discuss achieving peace of mind around your retirement, please book a free initial chat here:

https://calendly.com/duncan-bw-hoebridgewealth/30min

NOTE: None of the above is financial or investment advice and you should speak to me or someone else professionally qualified to give you advice specifically tailored to your circumstances. A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.