How much Labour's foot-dragging is costing your retirement

Telegraph

31-07-2025

Labour promised a wide-reaching pensions overhaul in its election manifesto to improve the nation's financial security in retirement. True to its word, just a month after its landslide victory, a comprehensive two-part review was announced.
Eyebrows were quickly raised, however, as phase one rolled out and it became clear the overhaul was more about generating economic growth for the Government than boosting savers' returns.
Even when phase two was finally outlined earlier this month, the review shunned any immediate action and instead set up a Pensions Commission. It will take around 18 months to report back on how to tackle key issues like savings rates and auto-enrolment – the mechanism that signs workers up for a pension unless they opt out.
In the meantime, ministers have confirmed that a major pillar of the reforms – the amount which savers and employers must contribute – will not increase this Parliament. It's a decision that could cost workers six figures by the time they stop working.
With a fifth of Britain's 15 million pension savers on course to retire in poverty, and reliance on the state pension increasing, Telegraph Money teamed up with Hargreaves Lansdown to explain how much Labour's delays could cost you in retirement.
Workers
Cost to pension pot: £106,000
Under the current rules, workers must be automatically enrolled into a pension if they earn at least £10,000 and are aged between 22 and state pension age. In return for a 5pc minimum contribution from the employee, their employer must add at least 3pc.
There are widespread calls from experts to increase both minimum saving rates to 6pc. With any changes ruled out for this Parliament, however, this now won't happen for at least four years, and any eventual progress is expected to be gradual.
According to Hargreaves Lansdown, a 22-year-old earning £23,500 and putting 8pc into their pension until age 68 would have an eventual pot of £213,000. But if the rates were increased to 12pc overall, they would have £319,000 – meaning they would miss out on £106,000.
Self-employed
Cost to pension pot: £160,000
Self-employed people are not currently automatically enrolled into a pension, leaving many to fall through the cracks and at risk of struggling in retirement.
In fact, researchers Nest Insight recently found that just 18pc of self-employed people pay into a pension, despite three quarters saying they want to.
If they were automatically enrolled, a self-employed person earning £23,500 would contribute the minimum 5pc, since there is no employer to pay in.
If they did this from age 22, they would have £133,000 in their pot by age 68. If the rate was increased to 6pc, their pot would hit £160,000.
Young people
Cost to pension pot: £39,000
If workers aged between 18 and 22 were automatically enrolled, it could put tens of thousands more into their pension pot. The legislation for this change has already passed but has yet to be enacted.
A young worker on the minimum wage working 40 hours a week would currently be paid £20,800 a year. If the age of auto-enrolment was lowered to 18, they would have an extra four years of pension contributions, meaning their pot would hit £7,000 by age 22.
Given the long period it would be able to grow for, that amount would be £26,000 by the time they retired. If the minimum contribution rates were also increased to 12pc, this would be £39,000.
Low earners
Cost to pension pot: £4,000
Anyone earning at least £6,240 is allowed to join a pension scheme. However, they are not automatically enrolled, nor does their employer have to pay in, until their salary passes £10,000.
This also hits people with multiple low-paying jobs, as they still wouldn't be enrolled into a pension for any roles paying below £10,000 – even if their combined earnings were higher.
If someone earned £9,000 at age 22 and increased their earnings by 3pc a year, they wouldn't cross the £10,000 threshold until age 26. Missing those four years of paying in would leave them with a pension pot of £77,000, rather than £81,000.
There are calls to remove this lower earnings limit, which was also included in the legislation passed and is yet to be put into effect.
Susan Hope, of Scottish Widows, said: 'Lowering the age to 18 and removing the lower earnings limit could be absolutely transformative for young people.
'It would move them from a retirement of having no car, takeaways and foreign holidays towards one with more financial freedom and choice – without having to rely on other people.'
Helen Morrissey, of Hargreaves Lansdown, said: 'Changes to auto-enrolment contribution levels have the potential to transform people's retirement outcomes. However, there is nuance – if the contribution limits are raised across the board there is potential for lower earners to put themselves in financial difficulties today because they are contributing more into their pensions.
'More widely, what the Pensions Commission has shown is that there are a lot of people under-saving for retirement and not heading for the income they want or need. The commission has the potential to have an enormous impact on these people's retirement security.'
The Department for Work & Pensions said Liz Kendall, the Work and Pensions Secretary, had addressed the rationale behind the timings in a speech.
She said: 'Cost of living pressures mean many workers are more concerned about putting food on the table and keeping a roof over their heads than saving for a retirement that seems a long, long way away. And many businesses face huge challenges in keeping profitable and flexible in an increasingly uncertain world.
'That's why we have already said there will be no change to minimum auto-enrolment contribution rates during this Parliament.'