Nest Insight: Understanding the context of the Pensions Commission

The new Pensions Commission has a daunting task. First, in replicating the outstanding and lasting impact of its predecessor, which remains a globally recognised example of best practice in evidence- and consensus-based policy making. And second, in doing that in a materially more complicated political, economic and social context. We really welcome the creation of the commission and look forward to supporting its work.

Now let’s add some new wrinkles to the challenge. The pensions industry has long anticipated this review as ‘the adequacy review’, and this has often really been shorthand for ‘the review that will increase default auto-enrolment contributions’. The logic was simple – lots of people aren’t saving enough for their retirement, most people stick with the default, so the default should be higher.

”The economic backdrop and the response to the rise in national insurance have significantly dampened expectations that employer pension contributions could be a near-term component of any change to auto-enrolment.”

Will Sandbrook, Nest Insight

More recently, however, two things have started to infiltrate this view.

Understanding auto-enrolment in 2025

First, part of this longstanding expectation has been that it would mostly be the employer contribution that would do the heavy lifting on any increase. But the economic backdrop and the response to the rise in employer national insurance contributions have significantly dampened people’s expectations that this could be a near-term component of any change.

Second, we now have a more nuanced understanding of the impact of current auto-enrolment policy on other aspects of people’s household finances.

Defaults appear to have been more powerful than expected. Opt-outs and cessations are not only consistently low across all income levels but have also remained low throughout stepped increases in contributions, the pandemic, and increases in the cost of living. This isn’t always a good thing, but in different ways for different groups. For higher earners, it often means not saving enough for retirement, but for lower earners, it’s more nuanced than this.

Nest Insight’s research, as well as that of others, suggests that auto-enrolment contributions are rarely funded solely from reduced spending, and can crowd out other forms of saving and crowd in additional borrowing. The likelihood of these effects is necessarily greater for those with limited discretionary income.

As a consequence, more people are now questioning whether higher contributions are appropriate for all, or even for most, of those who are eligible for auto-enrolment.

What does adequacy really mean?

One consequence of these shifts has been a welcome focus on fairness, alongside adequacy. Yes, some people who have been automatically enrolled don’t save enough. But what of the 45% of working-age adults who don’t currently save for retirement at all? Many among them are self-employed people. Others are part-time workers with income below the automatic enrolment threshold – often women and/or from minority ethnic groups.

The other consequence has been a step towards recognising that solving for ‘good outcomes in retirement’ might touch on aspects of public policy that stretch beyond pensions. Former Secretary of State for Work and Pensions Liz Kendall highlighted this when launching the commission earlier this year.

In her speech, Kendall recognised the central role of “good work” in driving retirement outcomes, referencing innovative ideas such as workplace sidecar saving tools, which are designed to help people build emergency savings alongside pension saving.

Hybrid savings approaches such as these can support retirement outcomes as part of a more holistic view of people’s financial health and wellbeing. Indeed, some of those already subject to auto-enrolment may be better served – both now and into retirement – by a more flexible system that helps them address other financial challenges alongside pension saving. The same might be true if we bring in currently-excluded groups whose needs and priorities might differ from those already saving.

At Nest Insight, our research very much supports the need for this broader focus. But the Pensions Commission will also, rightly, want to ensure that the massive progress made by implementing its predecessors’ recommendations is preserved and built upon. A wider view might be necessary, but too wide a view might be destabilising.

Figuring out where to set the balance is a significant challenge for the commission, and one that needs a similar focus on evidence to resolve. In the coming year, our research programme will be aiming to fill in some of the gaps and build on what’s already there to support the Pensions Commission in its important work.

Will Sandbrook is managing director of Nest Insight.