The adequacy challenge: what the Second Pensions Commission’s Interim Report means for employers

On 19 May 2026, the Department for Work and Pensions published the Second Pensions Commission’s Interim Report on the state of retirement savings in the UK. The findings paint a clear picture of the scale of the challenge the Commission faces to design a proposed pension system that will provide adequate, fair and sustainable retirement incomes for all.

Although the Commission’s final report and recommendations aren’t expected until early 2027, there are some clear indicators of the direction of travel in this comprehensive analysis of the current state of UK pension provision. Employers will no doubt read the report with interest and consider their own pension arrangements in light of the report’s findings.

What is the purpose of the report?

The Government has tasked the Second Pensions Commission to look to the future to consider what framework will be needed to ensure that there are adequate pension incomes for the long term. 

The Commissioners’ mandate focuses primarily on private pension arrangements but does also consider the role of the state pension as the foundation for retirement income. The review is holistic, encompassing consideration of the wider pressures impacting how much people can and should be saving, including an ageing population, increased housing costs in retirement, health and employment challenges. 

The headline: the UK is not saving enough

The core message is simple and stark: too many people are not saving enough for retirement. Whilst automatic enrolment has been a key driver in increasing pension scheme participation, and is described as a “major policy success”, the report acknowledges that the job remains unfinished. 

The first Pensions Commission identified three key pillars for pension adequacy – the state pension, private or workplace pensions and voluntary pension savings – and led to the implementation of automatic enrolment. Whilst the state pension has now broadly reached the levels that were suggested to be necessary, there remain significant gaps as a result of under-saving under the second and third pillars. 

Large swathes of the population are therefore still either not saving, or not saving enough. Particularly affected groups include low and middle earners, the self-employed and women - look out for our follow up article focusing on the EDI aspects of the Interim Report's findings which we will be publishing shortly.

Here are some key statistics from the report:

• Currently 15 million people are under-saving for retirement which could reach 19 million without action.
• 45% of working-age adults (around 18 million) are not saving into a pension at all.
• Just 4% of self-employed workers are saving for retirement.
• 3 in 10 private pension pots are accessed at the earliest possible opportunity and nearly half of these are spent on large expenses like a car, holiday or renovations. 

Pensions Minister Torsten Bell has warned that “without action millions more people could be at risk of becoming reliant on state support in retirement”.

As part of its findings, the Interim Report considers what would be an appropriate methodology for assessing adequacy of retirement income, suggesting that a hybrid metric “building on replacement rates for middle earners while focusing on a basic adequacy standard for low earners would help guide policy in future”.

What does this mean for employers?

The biggest challenge to the lack of pension savings is simply that, for a variety of complex and interlinked reasons, today’s employees are not saving enough into their pensions.

Employers have a key role to play in communication, in educating their workforce regarding the pension benefits offered in order to encourage participation. This is reflected in the report’s findings. For example, the median earner is contributing 1.7% of pay above the minimum levels required by automatic enrolment – this type of additional saving is primarily driven by employer behaviour (rather than individual initiative) for example, through the employer calculating pension contributions using total pay instead of qualifying earnings. 

The statistics could also provide opportunity for employers. As awareness of the savings gap grows, strong pension provision could be a differentiator in attracting and retaining talent. We would encourage employers to consider their pension provision in light of the Pension Commission’s findings.

An added challenge that many employers will be facing is the change to salary sacrifice arrangements. On 29 April 2026 the National Insurance Contributions (Employer Pension Contributions) Act 2026 received Royal Assent which means that the framework is in place to allow the Government to implement the policy changes announced in the 2025 budget; it is intended that from 6 April 2029, salary sacrifice contributions above the £2,000 cap will be subject to employee and employer National Insurance Contributions. This may cause some employers to pause and consider how generous they can afford to be with pension contributions, particularly when combined with the increase to employer NICs that took effect in April 2025. Our recent article offers more commentary on what employers should be considering in relation to the forthcoming salary sacrifice changes.

Of course, whilst increasing the amount employees (and employers) input into pensions is one way to improve outcomes it is not the only one. With the vast majority of savers in the private sector participating in DC schemes, improving saver returns is also a key piece of the puzzle. With implementation of value for money reforms on the horizon, employers should consider reviewing their arrangements to check that the offering of their current provider remains competitive. 

The development of the fledging CDC (collective defined contribution) market is also an exciting prospect for employers looking to differentiate their employee rewards package, with modelling suggesting that CDC will offer better returns and outcomes for members than a traditional DC arrangement.

What’s next?

Since publication of the Interim Report, the Pensions Commission has been engaging with the pensions industry, as well as employers, charities, academics and individuals, to gather views before publishing its final report and recommendations in Spring 2027. We were lucky enough to jointly host a roundtable event with Commissioner Nick Pearce recently, where it was fascinating to hear first-hand about the Interim Report and how the Commission is approaching the task of formulating its recommendations.

The Commissioners have acknowledged in the report that any recommendations need to be both sustainable and durable for employers. The value of giving employers adequate notice of changes is clearly recognised, as is the importance of any future adjustments to automatic enrolment eligibility, earnings bands and minimum contribution rates being “affordable for businesses, individuals and the state” and able to be “easily implemented in an appropriately staged and phased manner”. 

Pensions Minister Torsten Bell has previously said that the Government has ruled out any changes to automatic enrolment contributions this Parliament, however it is important for Employers to be aware that the recommendations could include other policy changes, which may of course impact employer-sponsored pension schemes. And with this week’s appointment of a new Prime Minister we may yet see changes to auto-enrolment arrangements sooner than anticipated – the foreword to the interim report itself identifies that “automatic enrolment must evolve if it is to meet the aspirations people have for retirement”.

However, it is worth noting that the Interim Report highlights that contributions “are not the only driver of retirement pot sizes”. Both investment returns – which can constitute up to two thirds of a pension pot – and decumulation choices play a critical role in adequacy of retirement incomes. The implementation of measures such as the value for money and guided retirement changes under the Pension Schemes Act 2026 will also therefore be part of the solution, as may development of commercial CDC and retirement-CDC schemes.

If you would like to discuss what the changing pensions landscape means for your business, please contact Chris Brown, Partner in our Pensions and Lifetime Savings Team or your usual Burges Salmon contact.

This article has been authored by Louise Pettit and Emma Mitchell.