Confronting Inequality in the UK Pension System

In the previous articles, Anthony Royd laid bare the stark inequalities in the UK’s pension system, highlighting how public sector pensions disproportionately benefit one group while private sector workers and state pension recipients bear the brunt of inadequacies.

This final article presents a comprehensive solution—a Hybrid Pension Model that merges fairness and affordability by replacing bloated public sector pensions with a balanced system. Coupled with a Universal Pension Credit and a Double Lock for vulnerable groups, this approach offers a pathway to equity, sustainability, and financial security for all retirees in the UK. The time to address these systemic injustices is now.

The UK pension system is at a critical juncture, with millions of retirees trapped in poverty despite living in one of the world’s wealthiest nations. The inadequacies of the Triple Lock system and the stark divide between public and private sector pensions have created an unsustainable and inequitable framework that fails the most vulnerable.

This article is a call to action: without systemic reform, the inequalities entrenched in the current structure will only deepen, burdening future generations while denying retirees the dignity they deserve.

It proposes ethical guidelines for pension reform, prioritising justice, equity, sustainability, and intergenerational fairness to create a system that works for all. Torsten Bell MP, the pensions minister, has labelled the Triple Lock as a “silly system,” but his focus on pension tax reform misses the mark entirely. His historical missteps, including opposing meaningful increases in pension allowances, raise serious doubts about his ability to address the magnitude of the challenge ahead.

The proposed Hybrid Pension Model offers a transformative path forward. By integrating defined benefit and defined contribution systems with an increased state pension, this model ensures that public sector pensioners maintain their benefits while introducing equity for private sector workers.

Equity in the UK Pension System

The savings generated from streamlining public sector schemes, reducing administrative costs, and alleviating poverty-related health expenditures make this approach both ethical and economically viable.

The time for half-measures and bureaucratic inertia is over. Only through bold, comprehensive action can we create a pension system that reflects the values of fairness and sustainability—and secures a future where all retirees, regardless of their background, can live with dignity and security.

A hybrid pension system integrating defined benefit (DB) and defined contribution (DC) schemes, alongside an increased state pension, would significantly enhance retirees’ financial stability. Currently, the UK’s state pension replacement rate is a mere 28.4%, far below the OECD’s relative poverty threshold of 60% of median income. This leaves many retirees vulnerable to financial hardship.

Raising the state pension to 60–70% of pre-retirement income, depending on contributions, would provide a robust foundation, ensuring retirees can meet essential needs. This increased base income would reduce the public sector burden and could be supplemented with DB or DC plans in both public and private sectors. DB plans offer predictable, stable income based on salary and service years, while DC plans allow for growth through investment returns, striking a balance between stability and growth potential.

Combining these elements with the state pension diversifies retirees’ income streams. DB plans ensure guaranteed payouts, while DC plans provide opportunities for investment-driven returns. This diversification reduces exposure to market fluctuations and helps retirees manage unexpected expenses, such as medical emergencies or changes in living circumstances.

Furthermore, the public sector pension burden would decrease as state pensions increase, addressing the £208 billion shortfall caused by insufficient contributions. It would also mitigate future financial crises, including potential bailouts for the Local Government Pension Scheme (LGPS), which some analysts have flagged as a looming risk.

Strengthening state pensions and aligning benefits across sectors would reduce poverty among retirees. The disparity between public and private sector pensions—where public schemes replace up to 75% of pre-retirement income—exacerbates inequality.

Enhanced pensions for all would boost disposable incomes, stimulating local economies and supporting overall economic growth.

A hybrid pension system encourages individuals to actively engage in retirement planning. DC plans, which require personal investment decisions, foster a culture of saving and investing. Employer incentives, such as contribution matching, can further motivate employees to prioritise long-term financial health, especially among younger workers.

Transitioning to a hybrid system could reduce the financial strain on public sector pension schemes. Additionally, as retiree poverty declines, reliance on social welfare programs would decrease, alleviating long-term government liabilities. By addressing systemic inadequacies now, the government could also minimise future costs tied to an aging population.

Creating a fair pension framework would bridge the gap between public and private sector benefits, ensuring equity among all workers. By aligning pension replacement rates while increasing state pension support, the government can foster trust and social cohesion across sectors.

To safeguard vulnerable groups, a universal pension credit system should replace the means-tested Pension Credit Scheme. This approach would supplement incomes for retirees below a threshold, streamlining application processes and addressing inequities affecting marginalised communities, such as ethnic minorities, single parents, and those with health challenges.

A universal system would reduce income inequality and poverty among retirees while requiring fewer social welfare interventions. Although implementation may demand significant investment, the long-term savings and social benefits justify the effort.

Conduct a comprehensive review of public and private pension schemes to identify disparities and ensure financial sustainability.

Engage employees, unions, advocacy groups, and financial experts to gather insights and address concerns.

Transitioning the state pension to a Defined Contribution (DC) Scheme funded by ring-fenced National Insurance contributions would ensure that funds are used exclusively for pensions and not diverted into infrastructure or growth projects. This approach reduces reliance on general taxation and mitigates intergenerational fiscal pressures, promoting equity across generations.

Raising the basic state pension to cover 60–70% of pre-retirement income ensures equivalence with current public sector pensions, which would no longer be necessary, as would spending on low-income benefits. The funds currently allocated to public sector schemes, that are not ‘Pay-as-You-Go’, covering between 50–75% of pre-retirement income, could be repurposed to establish public Defined Contribution (DC) schemes. These schemes would bridge the gap and offer incentives for public sector employees to make additional voluntary contributions, aligning their final pension outcomes with private-sector options.

According to the Office of OBR, pensioner benefit spending is forecast to total £138 billion in Great Britain in 2023-24, of which they project £125 billion will be spent on state pensions.

Public sector pension contributions are £45.3 billion with a further £7.9 billion needing state funding to cover the shortfall. The spending does not include Northern Ireland and benefits administered by local authorities for pensioners on low incomes who rent their homes from private or social-sector landlords.

The transition would allow a portion of remaining public sector funds, potentially 85–100%, to be redirected to the National Insurance DC scheme. Redirecting these funds may require legislative changes and should account for liabilities to current retirees and those nearing retirement.

This phased integration would reduce administrative duplication, enhance equity, and ensure that public and private sector workers benefit from a sustainable, transparent, and fair pension system.

Draft and pass legislation to establish the hybrid model and ensure regular reviews to adapt to changing demographics and economic conditions.

Implement a robust strategy to educate workers on the new system, using workshops and accessible resources to ensure clarity.

A phased rollout over several years will allow time for adaptation and the growth of DC funds, ultimately reducing government subsidies and ensuring a sustainable, equitable pension system for future generations.

Establish ongoing evaluation mechanisms to assess the model’s effectiveness, ensuring it achieves equity and financial stability.

The Hybrid Pension Model, combined with increased state pension provisions and a Universal Pension Credit system, represents a transformative solution to the UK’s pension inequities.

By addressing systemic failures and promoting fairness, this model ensures retirees from all sectors of the UK, can live with dignity and financial security.

The government must act decisively to implement these reforms, creating a sustainable future for all, or Is It Me!

In his comprehensive eight-part series, Anthony Royd delved into the significant disparities within the UK pension system, highlighting the pressing need for reform to address the inequities affecting state, private, and public sector pensions. As the population ages and fiscal pressures mount, Royd outlined a roadmap for creating a fair, inclusive, and sustainable retirement framework for all.

Examined the UK’s pension landscape, emphasising the inadequacies of the state pension, the disparities between public and private sector schemes, and the urgent need for reform to reduce inequalities and fiscal burdens.

Revealed how the current system disproportionately impacts low-income taxpayers, placing an unfair financial strain on them while offering limited returns in retirement.

Highlighted the stark contrast between the generous, taxpayer-funded public sector pensions and the volatile, often underfunded private sector schemes, calling for greater parity.

Critiqued the limitations of the Triple Lock policy in addressing pensioner poverty, advocating for more substantial reforms to lift retirees above the poverty line and align UK pensions with international standards.

Explored the disproportionate disadvantages faced by women, ethnic minorities, and single parents in retirement, emphasising the need for targeted policies to ensure equity for vulnerable groups.

Proposed ethical guidelines for pension reform, prioritising justice, equity, sustainability, and intergenerational fairness to create a system that works for all.

Advocated for transitioning to a Hybrid Pension Model that blends defined benefit and defined contribution schemes, alongside an increased state pension, to achieve fairness and economic sustainability.

Concluded with a bold vision for comprehensive reform, including a Hybrid Model, Universal Pension Credit, and increased state pension provisions, ensuring dignity and financial security for all retirees.

This series underscored the urgent need to overhaul the UK’s pension system to address systemic inequalities and secure a sustainable future. Royd’s proposals offer a balanced, inclusive framework that prioritises fairness and dignity for all retirees, urging decisive government action to deliver transformative change.

Re-examine all you have been told. If this series of articles resonates with you, don’t let it stop here. Take action. Write to your Member of Parliament. Engage with action groups that support the elderly and vulnerable—let them know there is a fairer, more sustainable path forward: The Royd Way.

Together, we can challenge the status quo, bridge the gaps in pension inequality, and create a system that truly works for everyone, with a future of fairness, dignity, and opportunity for all retirees.  The time for change is now, or Is It Me! — Anthony Royd