Go back to insightsRethinking the State Pension
Could the State Pension be replaced by a more flexible income model? A new report suggests it may be possible.
There are currently around 12.6 million people above State Pension age (SPA), with government spending on the State Pension accounting for roughly 5% of GDP, second only to healthcare. According to projections by the Office for Budget Responsibility (OBR), this cost could increase by over 50% by 2070, as the pensioner population is expected to exceed 18 million.
While policymakers have long recognised the growing financial pressure, political realities have often led to the opposite approach. No party is keen to propose reduced pension benefits for a demographic that is more likely to vote. Against this backdrop, the Tony Blair Institute (TBI) has put forward a more radical alternative.
The TBI has proposed replacing the State Pension with a “Lifespan Fund” from 2030, combining three key reforms:
- Replacing the triple lock:
Instead of annual increases based on the highest of earnings growth, inflation, or 2.5%, payments would follow a smoothed link to earnings. This would aim to maintain alignment with wages over time, while ensuring pensions do not fall in real terms, an approach similar to that suggested by the Institute for Fiscal Studies. - Greater flexibility in access:
Individuals could draw on part of their State Pension entitlement earlier in life, for example during periods of unemployment or retraining. This would effectively act as a loan against future pension income, which could later be rebuilt through increased contributions. - Removing a fixed State Pension age:
Rather than a universal SPA, the system would offer a standard 20-year entitlement period. Individuals could choose when to begin drawing their pension, with payments calculated on an actuarially fair basis, taking account of factors such as age and health.
The proposals have attracted criticism, particularly around their complexity, practicality, privacy implications and political feasibility. However, the core issue they address, rising public expenditure, remains largely undisputed.
At the very least, the report highlights the risks of relying solely on the State Pension to fund retirement.
19th June 2026