April 2026 saw a landmark in the world of UK pensions – from 6 April onwards, the state pension age (the earliest age from which one can draw on a state pension) began the rise from 66 to 67. Like the Artemis II crew, we are going further than ever before. It is a change 20 years in the making – introduced by the last Labour Government, and brought forward by the Conservative/Lib Dem Coalition Government.
Such a change is really indicative of how the world of politics, and competing political priorities, impact on our pensions and ultimately on our bank accounts. Pretty much all aspects of pension saving have a political bent, as I will illustrate below.
The state pension age
This is currently rising from 66 to 67 by 2028, then set to rise to 68 in the 2040s. Historically it was 60 for women and 65 for men, but the last 15 years have seen seismic changes, partially as a delayed response to increased life expectancies. Governments carry out periodic reviews, with a soft commitment that any detrimental change should be implemented with at least 10 years’ notice. So further changes are possible – for better or for worse.
The state pension amount
The full state pension is currently £241.30 per person per week, and the Government currently pays out £146bn a year on the state pension. In contrast, roughly £125bn was spent on the state pension by the Government in 2023-24. The amount of state pension an individual can get is determined by their National Insurance record.
The triple lock
Each year the Government reviews the value of the state pension. Since 2011 the triple lock – which applies the best of average earnings growth, price inflation and 2.5% - has been used to work out how the state pension should be increased. This means that for the last 15 years, pensioners have seen this element of income grow by much more than the incomes of the non-pensioner population. The continued application of the triple lock is the subject of constant political debate, with an increasing consensus that it is not sustainable for the long term.
National Insurance
This contributed £179bn to the Exchequer in 2023-24. Dentists who employ staff will be familiar with the relatively recent hike in employers’ National Insurance (NI) rates. The rates of employee, employer and self-employed NI, along with the levels of earnings on which they are applied, do tend to be dynamic. The facility to grant NI credits to anyone without earnings is also a political decision.
Tax relief
Tax relief is a long-standing principle that contributions paid into a pension scheme are free of income tax, and that investment gains made therein are also income tax exempt. However, for payments out of a pension scheme, the first 25% is tax free with the remainder subject to income tax. Tax relief on pension contributions is reported to have cost the Exchequer £78.2bn gross in 2023-24, however the taxation of pensions in payment did raise £25.4bn. The reported net cost of pension tax relief was £52.5bn in 2023-24.
Upper limit on tax relief
There has long been a cap on how much tax-exempt pension savings an individual can have. Since 2006, the cap took the form of an annual allowance and a lifetime allowance – the latter being abolished in 2023. The levels of these allowances have been the subject of political tinkering, often to the annoyance and detriment of high-earning clinicians. In 2023-24, the revenue raised by the annual allowance was less than £1bn.
Inheritance tax
Changes introduced in 2015 made leaving pension savings ‘unused’ (i.e. not drawn upon) a more viable option, and thereby made pensions a much more attractive vehicle for avoiding inheritance tax. The Labour Government has announced that from April 2027, unused pension funds will count towards the estate on which inheritance tax is due. This change is estimated to raise £1.5bn a year by 2030.
Personal pension investment
Private sector pension schemes invest money, either through trustees or directly from the saver. Government is exploring the possibility of mandating UK-registered pension schemes to allocate a minimum level of their investments into UK companies.
NHS pensions
Public service pensions, like all aspects of public service remuneration and payments, are subject to constant government scrutiny and review. In England and Wales, the NHS Pension Scheme alone has nearly 4 million members; attracts contributions of £24bn and pays pension benefits of £18bn. The NHS pension has been significantly changed in both 2008 and 2015. No significant reforms are planned, but the cost of providing guaranteed pensions is reviewed every four years.
Of course different perspectives exist on all of these issues, and to what extent resources should be directed towards – for example – pensioners and public sector workers. For dentists working in the public sector the public service pension schemes represent a high-quality level of saving, that is subject to constant political scrutiny and occasional attack.
The Conservative-led Coalition Government instigated detrimental changes in 2015, but the pensions remain a vehicle that offer a guaranteed income in retirement. Reform UK has recently said that they would stop new members from joining so-called ‘gold-plated’ public service pension schemes. This would risk creating a two-tier workforce and ultimately weaken the pension funding and bargaining strength of the existing members. And, as has been demonstrated by the all-consuming McCloud Remedy, two-tier levels of pension provision can result in legal challenge and years of cumbersome remedial action.
Political parties’ staff pensions
As a means to test the measure of various large parties’ approach to quality workplace provision, I have looked at their annual accounts to assess how the contributions paid to party staff measure up, as a percentage of their salaries. I used the 2024 accounts published on the Electoral Commission website.
The rates are shown below – to put these in context, it is worth noting that the legal minimum employer contribution is 3% (of banded earnings, not total salaries), the NHS Pension Scheme in England and Wales currently attracts an employer contribution of 23.7%, the Civil Service Pension Scheme gets 28.7% and Armed Forces get 71.5%.
Labour: 15.0%
Scottish National Party: 10.2%
Plaid Cymru: 9.1%
Conservative: 3.6%
Green: 2.9%
Lib Dem: 2.2%
Reform UK: 1.5%
Pension decisions represent but some of the areas that our elected representatives chose to intervene; with decisions resulting in costs or savings of billions of pounds. That is billions of pounds of all of our money that is circulating, with government decisions ultimately affecting who are the net winners and losers.
All this means it is important to at least be aware of the system, and exercise your democratic ability to influence who will be making those decisions. For dentists, we will always act to ensure that members’ voices are represented to politicians and governments on pensions matters, as well as everything else.
