My old boss is asking a simple but deep question.
Rethinking the state pension – time to give people more control?
I guess that it’s an obvious question if you think people should have freedom with their pension.
Lawrence Churchill, ILC’s Chair of Trustees and former Chair of NEST poses the challenge: why have a single pension age at all?
Lawrence Churchill CBE
Governments worldwide are struggling to balance affordability, sustainability and fairness in their state pension systems, as they were designed in an age when people died shortly after leaving work. This is no longer the case – yet the age at which it can be claimed has not kept pace with longer lives. In the 1960s people spent on average about 20% of their adult lives in retirement – now it is over 30%.
Almost every debate focuses on one question: what should the state pension age (SPA) be? The International Longevity Centre has suggested that, to keep the ratio of workers to non-workers stable in the UK, it would need to rise to 70 by 2040. Denmark has already legislated for this with their SPA rising from 67 today to 68 in 2030, 69 in 2035 and 70 in 2040. Critics, however, argue that many people simply cannot work that long because of poor health, disability or caring duties. These issues are real – and will only grow more pressing.
So perhaps we’re asking the wrong question. Why have a single pension age at all?
Instead, we could offer more choice within a national framework. Imagine replacing a fixed age with a personal “state pension pot” – the total value of someone’s entitlement from the current pension age to average life expectancy. Using today’s figures, that would be around £250,000. The Government Actuary’s Department could set rules on when payments can start, the maximum annual drawdown, and how it keeps pace with inflation. Within those limits, individuals could choose when and how to draw their pension.
If someone lives longer than average, payments would continue for life. If they die early – say, within five years – some of the balance could go to their estate. It would function with the freedom and choice of a personal pension but with the security and fairness of a state-backed system.
Such reform could relieve pressure on public finances while giving people greater control. Seeing a £250,000 fund feels very different from receiving £200 a week – it encourages people to think of their pension as an asset, not a handout.
Affordability could be built in. The size of the pot or withdrawal rates could flex with economic conditions – rising more slowly when growth is weak or borrowing costs are high. Those with serious health issues or caring responsibilities could still draw earlier, keeping the system fair and responsive to individual families’ needs.
Our parents and grandparents often retired with only a few years left to live. Today, someone turning 66 can expect another 20 years, most in good health.
But this is not only about finance. If people are to work longer, employers must adapt too. A voluntary “code for older workers” – similar to those that improved gender and ethnic diversity on company boards – could promote fair recruitment, retraining and workplace design. It would signal that longer working lives are both possible and valued. The Mayfield review on “Keep Britain Working” is already leading the way in this area.
We now have the data, technology and insight to design a more flexible, sustainable system for the future, rather than continue to overstretch a system designed for yesterday. The state should provide a strong foundation – but it need not dictate a single path for everyone.
It’s time to rethink the state pension: not as a rigid promise tied to one age, but as a flexible lifetime asset reflecting longer lives, economic reality and personal choice.
The three stage life, educate, work and retire ended decades ago
those who successfully navigated the pension challenge.
The design of pensions for those who fail to plan needs to catch up. If we are to increase the success rate the debate is to be welcomed as long as it ends with a call for action and a clear end in mind.
I also had roughly this idea and discussed it with the Pensions Goth Daniela Silcock (apologies for advertising a competitor blog!). You described it far better than I did though.
For those who can think for themselves, the ideas are already out there and have been there for some time.
For example, Adam Smith recognised that complex economic coordination — such as the division of labour that produces something as simple as canned soup or pins— emerges spontaneously from self-interest, not from central planning.
No single mind can design or control this intricate web.
While his ideas are often misread as endorsing greed, Smith balanced economic realism with moral philosophy: people act from self-interest, so policy must reflect that reality.
This logic applies equally to AI, whose complexity makes it even less amenable to top-down control than earlier technologies. We need only provide a one-stop shop for those who have limited capacity, which is where morality takes the lead.