I wrote yesterday about raising the state pension age to 75. To put this in context, someone retiring at age 60, with a £250,000 pot of defined contribution savings, could buy themselves an escalating (3%) 15 year fixed term annuity of £19,400 a yearhttps://t.co/oUOQmIyxsp
— Tom McPhail (@PensionsMonkey) August 27, 2025
If you have a Times subscription – read this article from the start to the end, Tom is a great writer, a Toby Nangle for people who don’t work in the financial markets!
But rather than give you Tom’s preamble – in which he explains how the state pension has got to where it is, let me quote Tom when he gets to his proposal to a Government looking at State Pension as a means of sorting out the mess a large proportion of people are in
The state pension has evolved over time. It started as an insurance scheme for those who lived past working age, providing subsistence support at a time when most people lived only a handful of years in retirement, if at all.
It is now practically a universal benefit, paid to millions from an age that, for a lot of them, could be reasonably described as late middle-age.
At this point and given the fiscal pressures, new solutions are needed. So I would go for a radical reset: keep the state pension universal — same rate for everyone, irrespective of where you live, how healthy you are or how rich you are — but also push the state pension age back to about 75.
And here is the reason he feels we could all live with that
At this age, it would be possible to set it at a level where people could actually live on it. Send a clear message: your private savings are to cover the gap between stopping working and age 75.
Tom has worked out that someone retiring at age 60, with a £250,000 pot of defined contribution savings, could buy themselves an escalating (3%) 15 year fixed term annuity of £19,400 a year.
These numbers don’t go into the Times article, they’re in the tweet that I copied at the start of this article.
I can verify this is possible as it’s what we’ve advised a relation to do at 60 with a DC pot of around that amount. She has, being risk averse and having very clear ideas on what she wants to get paid now she is retiring (from teaching)
This is also a decent strategy if we are to move back to “money purchase” or even if we stay invested and go for flex and fix with the pot still invested and fingers crossed.
There is something satisfying about theorising what used to be called a “bridging pension”, the bridge is the private saving, the big deal is the state pension and the whole thing would work so long as annuities remain at current levels or we could devise an investable product that could get there with some risk-transfer to the markets (here a with-profits solution comes to mind). But I’m getting too fancy and forgiving of what is an idea that goes against the pension system that we have been bought into over the past fifty years.
Here the idea of pensions is based on money staying in the system using collective approaches to the payment of private pensions. This did include people retiring earlier than a state pension and occupational pensions did offer a bridging pension which fell away when the state pension arrived.
The only solution that properly bridges to a state pension starting at 75 is work and a very expensive incapacity benefit paid to those who can’t work. The state pension cannot be pushed back to 75 without a revolution amongst the working population. As Bryn Davies said at a recent Pension PlayPen coffee morning, we may have the “go big” idea of an affordable state pension. That was the aim of SERPS and S2P and GAD have even mooted that AE may allow acceleration towards affordability with our State Pension. But as Bryn said, “go big” slogans get reduced to what politicians can implement whilst staying in power.
We have actually “gone big” in the Pension Schemes Bill, by returning to a nudge based default decumulation fund where the nudge is into a deferred annuity (with hopefully better alternatives such as DB and CDC). This “big idea is actually a return to a view that a State Pension is a first step and a universal pension for those who work is the second.
What I think Tom wants is to find a way to plug the leaking bucket which is state pension costs as we go into the second part of this century and I know that there are many people who agree with 75 as the State Pension Age.
But the idea of saving for a pension that runs out at 75 (the bridge pension) is another matter. Tom keeps it for his tweet and holds it back from the Times article (or maybe the editor had that idea?).
Bryn is probably right in saying that “go big” is worth discussing, but the harsh reality is political acceptability! The tough truth is that Govt. will not make “workplace” a bridge to a better state pension at 75 . I cannot see a Government which has reinforced lifetime private pensions rejecting them – 18 months later.
I’m sorry but this is another reason why I do not want distractions from the job in hand Tom!
Increasing the state pension age a lot may work for healthy, well-educated people. The trouble is, about half the population have health issues that stop them from working by age 70. Many (probably the majority) of these will be people who haven’t earned a lot and won’t have built up decent sized pension pots. What we could get is a lot more people on means-tested benefits with its cost of both assessing them and then paying them the benefits.
Remember, the New State Pension was deliberately set at a level just above Pension Credit to stop a load of benefit assessments.
Thanks Richard – I will probably follow up with more informed comment like your from other sources. Tom and I are both right and wrong in different ways (according to my experts!)
As Richard says, what about the manual workers who’ve spent their lives in low paid employment but now just can’t carry on? They won’t have the savings to fill that gap. Remeber that Pension Credit is only, just. below New SRP if the SRP rate is full and there are no extra needs like caring, childremn, disability or, from next year, rent.
At over 5.6% in early trading, 30-year UK gilt yields touched their highest point in recent months on 27 August and were very close to levels last seen in 1998. The Autumn Budget will be a major short term factor in whether they move any higher.
That annuity is a good idea but might be best considered on a joint life and not ending in 15 years with an RPI link (while they still exist). The beneficiary should NOT take the longevity risk
What proportion of the market have more than £250,000?
From the states: I like Tom’s bridge concept a lot – but make it the DEFAULT, not a MANDATE. Make it one of the possible retirement goals for individuals who enter the workforce today, and those who entered in the past who have managed to save and invest.
I understand his proposal to be: A state pension to commence at 75 at an amount where “people could actually live on it” (however that is determined by people much smarter than me). I would index it for post-commencement inflation. That would be coupled with changes in employment laws designed to nudge individuals to continue employment and employers to foster continued employment beyond yesterday’s typical retirement ages (when life expectancy was less, much less). Then, of course, couple that with a disability state pension provision for those who become incapacitated/unable to work at any occupation for which they are qualified for by education, experience or training.
More than 20 years ago, I sat through a presentation by the exceptional economist John Shoven, of Stanford. He confirmed that Baby Boomers (the oldest had not yet reached age 60) and future generations would either have to work longer or retire later. Slowly, the trends starting at the turn of the Century show Americans doiing both. More Americans are working longer. More Americans are deferring commencement of retirement benefits to later ages. For example, the average age at Social Security commencement moved from 63 to 65 over the past 25 years. That’s huge!
In the states, to foster employment at older ages, onc change we need to make (you don’t) is to reverse changes made in 1982 and 1984 which flipped Medicare from primary to secondary for workers or spouses who continued employment past age 65 and remained eligible for employer-sponsored coverage. That is, employers would find it much more attractive to hire older workers or to continue older workers’ employment without having to shoulder health coverage costs.
In the states, we also need to move our Social Security Normal Retirement Age to age 70 from age 67 (today, normal retirement age 67 applies to anyone born in 1960). Today, all can defer commencement up to age 70 if they prefer a higher nominal monthly benefit.
Concurrently, because the Required Beginning Date for distribution of tax favored savings will be age 75 (also for those born in 1960 or later), we also need to move Social Security’s deferred retirement date from age 70 to age 75.
That is, there and here, it is long past time where we confirmed to workers, especially those entering the workforce TODAY at ages 18 – 24, that if they want to retire at a traditional retirement age of 62 or 65 (the historical “normal”), that to finance such a goal, that they would need to commit to consistent savings of 10% – 15% of income over the next 40 years.
I asked AI what proportion of retires have £250,000 in their plan to buy this bridging pension benefit. I am saddened by the reply it looks as if by this measure the pensions industry is failing as much as 90% of the market. See the reply
Based on the data I’ve found from the ONS Wealth and Assets Survey, I can provide you with information about UK pension wealth distribution, though the specific figure for those with over £250,000 requires some interpretation from the available data.
From the most recent comprehensive data available (ONS Wealth and Assets Survey, April 2016 to March 2018), here’s what we know about UK private pension wealth:
The median private pension wealth across all private pension types was significantly lower than £250,000 – for example, median wealth in active occupational defined contribution schemes was just £3,300 GOV.UK, and median total pension wealth was £48,000 to £57,000 Office for National Statistics.
For those aged 65 years and over with pensions in payment, median pension wealth for men was double that of women GOV.UK, but the specific amounts suggest that even for this older group, the majority would have had substantially less than £250,000.
The data shows that pension wealth is heavily skewed, with the wealthiest 10% estimated to hold around half of all wealth, primarily in the form of private pensions and property GOV.UK.
While I cannot provide an exact percentage of retirees with more than £250,000 in private pension wealth from the available data, the evidence strongly suggests it would be a small minority – likely well under 20% and possibly under 10% of retirees. The median figures being so much lower than £250,000 indicates that the majority of UK retirees have substantially less than this amount in their private pension pots.
In 2024, 70% of pensioners received income from a private pension, but having any private pension income doesn’t necessarily mean having a large pension pot, as many pensions provide modest income streams.
For the most current and specific distribution data on this threshold, you might want to check the latest ONS Wealth and Assets Survey results or contact the ONS directly for more detailed breakdowns of pension wealth percentiles.
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