The Tony Blair Institute for Global Change (TBI) today argues that Britain needs to move beyond piecemeal pension tweaks and replace the current state pension with a new Lifespan Fund – a more flexible model of state-backed income support built for longer and more fluid lives.
In a new report, TBI argues the current state pension is outdated, increasingly unaffordable, and too rigid for the way people live and work. It was designed for a more linear model of life, concentrating state-backed income support at retirement, even though people often need it much earlier – to retrain, change careers or take on caring roles.
Reform is now unavoidable. Britain has 12.6 million pensioners today, but this will rise to nearly 19 million by 2070. On current policy, state pension spending is projected to rise from around 5 per cent of GDP today to 7.8 per cent by 2070 – an extra £85 billion a year in today’s terms. That would mean higher taxes, deeper pressure on other public services, or both.
TBI argues that the first step must be to prevent the state pension rising faster than earnings growth by scrapping the triple lock. It also calls for the recently re-established Pensions Commission to foster cross-party agreement before the next election, paving the way for the triple lock to be replaced from 2030 with a smoothed link to earnings.
But that should be only the start. The report argues that Britain now needs a more fundamental redesign of the system.
Under TBI’s proposed Lifespan Fund:
People would build up entitlement through contribution across their lives
– including through work, caring, study and other recognised activity – with each year of contribution adding to a notional fund that would provide up to 20 years of state-backed support at the level of today’s state pension.
People could bring forward some of that entitlement during working life, under clear rules and with safeguards
– for example during unemployment, retraining or caring – to provide income support at critical points in life, supporting both employment outcomes and family security. Those who chose to do so would then be automatically enrolled into higher National Insurance contributions when they returned to work, creating a default path to rebuild what they had drawn down.
Access to pension support later in life would no longer be tied to a single State Pension Age, but would instead become personalised
– allowing people to choose when to convert their Lifespan Fund into a guaranteed pension for life, with the annual amount adjusted on an actuarially fair basis to reflect age and health. This would replace a one-size-fits-all pension age that penalises those in poorer health – often those on lower incomes and with shorter life expectancy – with a fairer system that better reflects differences in health and lifespan.
On TBI’s estimates, these reforms would hold long-run state pension spending at around 5.5 per cent of GDP, rather than allowing it to rise towards 7.8 per cent, avoiding roughly £66 billion a year in additional costs by 2070 (in today’s terms).
The report argues that this would create a state pension system that is more affordable, more flexible and fairer – one that keeps the principle of universal support in later life, but redesigns it for longer lives, changing work patterns and greater choice over how and when support is used.
Tom Smith, Director of Economic Policy at the Tony Blair Institute said:
“Britain’s state pension system was built for a different era. We can’t keep pouring money into a system that is increasingly unaffordable. Pension spending must be contained, and that means the triple lock cannot continue after the next Election. Ending it will require political leadership from all parties – but that should only be the first step. Real reform must also build a better system: one that is fairer, more flexible, and designed for how people live today.
“TBI’s proposed Lifespan Fund offers that better alternative. It replaces the one-size-fits-all state pension with a personalised system that people build up through active contribution across their lives. It gives people real freedom to use support earlier in life – to retrain, care for relatives or manage periods out of work – and to top it back up before retiring on their own terms. It keeps the promise of a secure retirement while making the system more flexible and financially sustainable – a new “grand bargain” that offers people more choice, greater transparency and fairer access to income support over the course of their lives. It is the upgrade Britain needs.”