Op-eds

Politically Impossible: Pension Reform

This is the first article in a series designed to offer solutions to problems that have been deemed politically impossible to solve.

How the UK Pension System Began

The modern day UK state pension was introduced after the Second World War under the Labour government led by Clement Attlee. At that time, there were vast numbers of retirees with no pension provisions who could not continue working. The solution was to fund pensions through National Insurance: current workers would actively pay for current retirees. There was no large, pooled fund invested for future payments. This pay-as-you-go system, while suitable at the time, has proven to be shortsighted and unsustainable in the modern era.

Why the Current System Is Unsustainable

The Triple Lock

The biggest challenge to pension sustainability is the triple lock. This policy guarantees that the state pension rises each year by the highest of 2.5 percent, inflation measured by CPI, or average wage growth. While well-intentioned, this means pension payments must increase annually regardless of the government's fiscal position.

Currently, the UK government is running a significant deficit of around £137 billion for the 2024 to 25 fiscal year. This forces it to borrow more, which increases debt interest repayments. These repayments reduce the funds available for public services and push the government to borrow even more, creating the risk of a debt spiral. If the government cannot outgrow its deficit, it risks losing access to borrowing, which could lead to a collapse in public services and government instability.

Political Reality

Pensioners vote at the highest rates of any age demographic and, understandably, in their own interests. They strongly support the triple lock and consistently oppose reductions in their pension income. As a result, it is extremely difficult for any government to win popular backing for pension reform. This is what renders the issue politically impossible to solve as the pensioner vote is essential to winning elections.

Demographic Pressures

A shrinking working population reduces the inflow of National Insurance contributions, making it increasingly difficult to support the growing number of pensioners. Higher NI rates are then imposed on the remaining workforce, which encourages emigration to lower tax countries such as Australia, Dubai, or Portugal. The resulting population loss forces NI rates higher still, compounding the problem.

What Could Be Done If There Were Support?

This problem is enormous, so the solution must be equally significant. The pension system must transition from the current pay-as-you-go model to a pay-into-the-pot model, where contributions are invested and allowed to grow over time. This would fund future pensions more sustainably. However, the shift cannot happen overnight, because existing pensioners rely on payments drawn from today's workforce.

A Phased Hybrid Model

A phased approach is necessary. Individuals under the age of 35 could move to a hybrid model. Under this approach, they would continue supporting current retirees through National Insurance while also contributing to a collective investment pot for their own retirement. When they reach pension age, they would draw from this pot rather than from the working-age population.

Means Testing

Alongside this, pensions would be means-tested. If a pensioner's income from other sources, such as rental property, stocks, or private pensions, exceeds the average wage, they would become ineligible for the state pension under this system.

Replacing the Triple Lock

To control the cost of maintaining the pay-as-you-go system during the transition, the triple lock would be scrapped. State pensions would instead rise annually in line with CPI inflation only. This reform, if implemented in 2011, would have saved £10 Billion a year by 2023. These savings could be invested into the new pension pot, gradually reducing reliance on tax-funded state pensions. In theory, this would reduce costs and make the system more sustainable over time.

Conclusion

In order to rein in public spending and make pensions sustainable, there must be a shift away from a model that relies on a constantly growing base of workers. The current system places an unsustainable burden on the working-age population and is fundamentally misaligned with the UK's demographic and fiscal realities. Pension reform is not just necessary. It is inevitable.

Thank you for reading this edition of Politically Impossible.

This article has also been published on Conservative Home.

Living Beyond Our Means: Why Britain Needs a Smaller State

This article addresses the urgent need for fiscal responsibility and spending restraint in the UK.

It is no secret that government spending in the UK has spiralled out of control over the last 20 years, taking funding to the detriment of public services, driven by the economic policies of both Labour and Conservative governments. Neither party has demonstrated the ability to consistently balance the budget, let alone deliver a surplus. The consequence is simple: the government is spending more than it receives in tax revenues, forcing it to borrow year after year.

This cycle of perpetual borrowing is unsustainable. It reflects a broader unwillingness to confront the reality of what the government can reasonably provide. It is time to have an honest conversation and make one of those 'tough decisions' Starmer is always talking about. There is a need for a lean, barebones state that provides only what is essential, where means-tested support replaces universal entitlement, and spending is brought into line with revenue.

Kicking the can down the road:

The size of the problem is clearly illustrated by the figures provided by the Office for Budget Responsibility (OBR). For 2024–25, the UK government is projected to raise £1,141.2 billion in taxes and other revenue, while spending £1,278.6 billion—creating a deficit of £137.3 billion. This shortfall translates to an average of £11.44 billion in new borrowing every month. It is important to note here that an estimated 48.6% of government spending is on Welfare, Health and Debt Interest, equalling £313.5 billion, £201.9 billion and £104.9 billion as of 2025-26.

Even more concerning is the burden of interest payments on the national debt, which is forecast to total £104.9 billion in 2024–25. That's before adding the estimated £444.8 million per month in extra interest from 2024-25's new borrowing. These debt repayments are not optional—they must be serviced, year after year, regardless of our current economic conditions, making it a risky choice. This is shown by interest repayments gradually increasing and now totalling 8.2% of all government expenditure, putting a strain on the rest of the system.

While it is theoretically possible to outgrow the debt—that is, to ensure GDP rises faster than debt repayments—in practice, neither Labour nor the Conservatives have achieved this sustainably. Because of this, debt servicing is consuming an increasingly larger share of the national budget, which leaves less room to fund essential public services.

Why can't the wealthy pay for it?

Some argue the solution lies in raising taxes on the wealthy. In theory, this could help balance the books. But the numbers tell a more sobering story. Even if the government:

  • Closed five major tax loopholes as proposed by Tax Justice UK (raising £7 billion),
  • Closed the tax gap by closing the gap between what HMRC receives and what they should receive in theory if all taxpayers complied with the letter of the law (£46.8 billion in 2023–24),
  • Introduced a 1% wealth tax on estates worth over £4 million (yielding £25 billion),

…it would generate an additional £78.8 billion annually. While significant, this would still leave a £58.5 billion deficit. Moreover, these are optimistic estimates, and such policies may discourage investment, drive capital abroad, or prove difficult to enforce. Crucially, they do nothing to reduce existing debt or its growing interest burden.

The Only Way Forward:

The ultimate conclusion is that the UK must cut public spending. Welfare must be restructured to ensure that support is given only to those in genuine need. Universal services should be reconsidered in favour of fiscally sustainable, means-tested alternatives.

The aim must be to eliminate the deficit entirely—not just to stop borrowing, but to run a surplus. Only by doing so can the government begin to pay down the national debt, now standing at around £2.8 trillion. This is not ideological; it is mathematical. Every pound added to the debt today is a pound taxed from the future.

Unless we act, debt interest will continue to crowd out other priorities, leaving less for schools, hospitals, infrastructure, and defence. At some point, unless there is unprecedented economic growth, the debt will become unmanageable.

We must stop living beyond our means. That starts with shrinking the state and spending only what we can afford.