If the government’s Pensions Commission applied the macroeconomics of a modern money economy, they’d have written a very different report…and pensioners and the planet would both be better off.
15 million Britons are not saving enough for retirement and will have to work longer and pay more of their income into private pensions to achieve an adequate income in retirement. That’s the conclusion of the government’s Pension Commission in its interim report, Pensions 2050: Evidence and Future Priorities, which was published in May 2026. The Commission, established in July 2025, was tasked with examining why tomorrow’s retirees risk being worse off than today’s and making recommendations to reverse this.
There are lots of useful insights in the report. Unsurprisingly, women, the self-employed and those on low incomes experience the worst retirement savings outcomes under the current system. The commission also identifies that falling home ownership and rising numbers of private renters risk driving more people into retirement poverty. The report also contains some big omissions.
There are few issues that span time horizons like retirement saving, so one might imagine that climate breakdown would be central to the report’s conclusions. And yet in nearly 200 pages, climate change is mentioned just twice. By contrast, ‘fiscal sustainability’ is mentioned on nine occasions.
Indeed, it is the emphasis on fiscal sustainability that exposes the fundamental flaw at the heart of the report and risks the commission overlooking the most powerful weapon they have in the fight against retirement poverty and ecological breakdown: The state pension.
The report is predicated on three category errors
First, the ‘dependency ratio’: The notion that because the share of the population over the age of 65 is projected to reach 28% by 2075, whilst the number of people aged over 75 will double between now and 2075 (a rise of 6 million people), there are fewer workers supporting the social security system that ‘pays’ the pensions of those who have retired.
Second, the ‘additional cost to the taxpayer’: The report identifies that spending on pensioner benefits (including the State Pension) is projected to grow from around 6% of GDP in 2024-25 to around 9% by the early 2070, whist referring to a range of fiscal challenges including ‘balancing the opportunity cost to the government’ and ‘state expenditure on pensioners and continued demographic change remain[ing] major drivers of pressure on future public finances’. All of which is code for public money being in short supply, so the government will have to make trade-offs about what to spend it on and on whom.
Third, ‘saving creates investment’. The report advocates for longer working lives to enable people to save more whilst also improving national economic performance. However, it also cites long-term sickness and regional economic disparities as barriers to work. The inference is clear: working and saving harder create the money for investment, which grows the economy and makes retirement poverty less likely.
All of the above are misguided assumptions about how the economy works for a government that issues its own currency. The report treats the government like a household that must live within its means by spending only what it can afford to raise in taxes. And yet the UK government is not like a household. It is the monopoly issuer of the pound and so can never run out of the pounds it wants (or needs) to spend to alleviate pensioner poverty because, like all UK central government-funded programmes (including social security), the spending is NOT funded by taxation. Rather, the money is created by the Bank of England and spent into the economy on behalf of the government.
The Second Pensions Commission interim report is flawed
The commission also ignores or misunderstands the macroeconomic structure of the UK economy. Put simply, the economy consists of the government sector, the non-government sector (that’s households and businesses) and the foreign sector. All transactions among these three parties in the economy must sum to zero. That’s simply a matter of accounting. One sector’s spending is another’s income. So, for an economy like the UK, which is in a permanent deficit with the rest of the world, for households and businesses to accumulate financial assets means the government MUST run a deficit large enough to offset the leakage to the rest of the world AND the non-government sector’s desire to save. Put another way…public investment creates savings.
However, if you look at page 48 of the OBR’s November 2025 assessment of Chancellor Rachel Reeve’s Budget, you’ll see that the government is forecasting a reduction in its spending in its attempt to ‘pay down the debt’ to meet its fiscal rules. Put simply, it’s all but impossible for the non-government sector to accumulate the financial assets its own commission argues are necessary to alleviate retirement poverty within the government’s current, macroeconomic policy framework.
Reframing the report with a clear-eyed understanding of how the UK’s monetary system operates should have profound implications for those leading the government’s retirement adequacy policy.
First, the state pension is always affordable. It’s not ‘funded’, dependent upon economic or investment growth, or constrained by an arbitrary amount of spending as a proportion of GDP. The state pension can do a lot more of the heavy lifting than the commission thinks is possible.
Second, and at a time when the ONS has reported that almost half of households are drawing on their savings or borrowing more to cover living costs, it’s incumbent on the state to increase its spending to enable the non-government sector to accumulate the financial assets it needs. How that spending is directed needs to be part of the commission’s conversation about retirement saving and the nation’s conversation about the UK’s growing income and wealth inequality.
Third, the report treats the state pension as a cost and private pension saving as an opportunity for investment. However, most Defined Contribution pension savings schemes simply trade stocks and shares and provide no new capital for investment in the productive capacity of the real economy. Those stocks and shares are simply financial claims on the future activities, cash flows and assets of the underlying companies. At a time when the consumption and extraction of planetary resources have pushed the earth beyond 7 of the 9 boundaries deemed necessary for human survival, making continued claims on the future by pouring more money into shares is both dangerous and entirely at odds with the notion of long-term retirement security.
What might a more resilient state pension look like?
Rather than encourage employees to work longer and save more (especially in an economy that already has 1.8m unemployed, 9m economically inactive, and just 500,000 job vacancies) the state could use the state pension as the basis to transition workers to a shorter working week, or enhance the accrual rate for those in socially useful jobs that enhance wellbeing and mitigate climate destruction, whilst supporting the transition of employees away from work that does not serve the resilient, wellbeing economy.
The state could confidently regulate the financial services sector to reduce its support for environmentally damaging activities whilst at the same time using its money-creation powers to invest heavily in the nation’s resilience. For example, state funded provision of universal basic services including low cost energy and utilities, social housing and public transport, lifelong provision of free education and healthcare, an expanded and publicly owned climate adaptation sector and a job guarantee…all of which mean that individuals would need to accumulate less private financial wealth throughout their lifetimes because they would know that their financial and ecological security in retirement is assured.
