Nicolas Gonne
OECD
OECD Economic Surveys: United Kingdom 2026
Abstract
The pension system performs well overall, supported by the complementarity between the pay-as-you-go state pension and asset-backed private pensions. However, it faces a dual challenge of preserving fiscal sustainability and strengthening private pension savings, particularly among groups with coverage gaps. The triple lock indexation of state pensions puts upward pressure on public expenditure and adds significant fiscal risks by exposing public finances to supply shocks, thus requiring a timely reform that overcomes political economy constraints. At the same time, strengthening work incentives is key to maintaining a robust pay-as-you-go financing base by supporting strong employment. In addition, extending automatic enrolment while preserving the right to opt out would help to increase private pension savings among the self-employed, while completing the childcare reform would boost female hours worked and lifetime earnings, hence contribute to narrowing the gender pension gap.
The UK pension system comprises a public, pay-as-you-go state pension scheme and an extensive private pension sector, ensuring that most individuals have adequate income in old age. Replacement rates are on par with the OECD average, especially for individuals with low lifetime earnings (Figure 2.1, Panel A). In addition, non-contributory benefits provide supplementary financial support to pensioners, notably the means-tested pension credit and housing benefit, as well as winter fuel payment. Pensioners may also be eligible for several health-related benefits.
Note: Panel A refers to the value of pension entitlements from (quasi-)mandatory public and private schemes relative to earnings, net of personal income taxes and of employee and pensioner social security contributions; in the United Kingdom, these comprise both state and occupational pensions; see OECD (2025[1]) for details. Panel B refers to the share of people with equivalised household disposable income below half of the median. Panel C refers to direct (cash) public expenditure and payments from private pension schemes. Panel D refers to the medium variant of the United Nations’ 2024 population forecast; OECD and G7 refer to simple averages.
Source: OECD Pensions at a Glance (database).
Reforms implemented in the 2010s strengthened adequacy. The introduction of the new state pension increased the level, coverage and indexation of the basic entitlement, reducing pensioners’ reliance on means-tested benefits (OBR, 2025[2]). Automatic enrolment into occupational pensions increased private pension participation considerably, from 42% of private-sector employees in 2012 to 89% in 2024.
The resulting safety net against old-age poverty appears broadly sufficient. Relative poverty for people aged 65 and over is only slightly higher than for the rest of the population (Figure 2.1, Panel B). Moreover, relative disposable income in old age is close to the OECD average by most measures, despite higher income inequality in the United Kingdom overall (OECD, 2025[3]).
The design of the system contributes to these outcomes (Box 2.1). The quasi-universal state pension provides a relatively high, flat-rate entitlement, mitigating disparities in lifetime earnings (OECD, 2025[1]). Private, quasi-mandatory occupational and personal pensions provide an earnings-related supplement to the state pension for most employees. At the same time, tax incentives for private pension disproportionately benefit higher-income individuals (OECD, 2024[4]).
The UK pension system comprises three pillars:
The state pension is a flat-rate entitlement from the public pay-as-you-go pension scheme. Although contributory in form, it is effectively quasi-universal, as periods of unemployment, sickness, disability and caring are credited towards the 35 qualifying years of national insurance contributions required for a full pension; it is payable from a single state pension age, currently 66 and legislated to rise to 67 by 2028.
Occupational pensions consist of a large set of private, quasi-mandatory funded schemes, with significant tax incentives for contributions up to an annual allowance. Defined contribution schemes account for a rising share of funded pensions; drawing down from individual pension savings or converting them into an annuity is authorised from age 55 (57 by 2028). Defined benefit schemes are largely closed to new contributions for private sector workers; by contrast, most public sector workers are in a pay-as-you-go defined benefit scheme.
Personal pensions allow individuals to save in private, voluntary pension plans, outside of occupational schemes but with otherwise similar features.
Major reforms were implemented in the 2010s following the work of the 2002-2006 Pensions Commission:
The new state pension, introduced in 2016, reduces pension income disparities by providing a higher basic entitlement than the previous state pension, removing the earnings-related component, and simplifying rules regarding qualifying national insurance contributions.
Regular state pension age reviews, required by the Pension Act 2014, constitute a safety valve for the system by regularly assessing whether rules about the pension age remain appropriate, including regarding life expectancy.
The triple-lock guarantee, in effect since FY2012-13, supports pensioners’ purchasing power by ensuring that the state pension is indexed annually by the highest of earnings growth, consumer price inflation or 2.5%.
Automatic enrolment, introduced in 2012 and fully implemented since 2019, boosts pension participation by requiring enrolment in occupational pensions for most private sector employees, with a right to opt out and compulsory minimum contributions by employers and employees.
Source: Department for Work and Pensions; HM Treasury; and OECD (2025[1]) Pensions at a Glance 2025.
The complementarity between pay-as-you-go state pensions and funded private pensions contributes to the system’s soundness. Although total pension expenditure is close to the OECD average, public expenditure is relatively low whereas private expenditure is relatively high (Figure 2.1, Panel C). Consequently, fiscal pressures from public pension expenditure are more contained than in many OECD countries (Chapter 1). In fact, the projected increase in spending on health and long-term care exceeds that on pensions (OBR, 2025[5]).
Demographic trends are also comparatively more favourable than in many other OECD countries. Although ageing is adding substantial pressure on the pay-as-you-go financing base of public pensions (OECD, 2025[6]), the projected increase in the old- to working-age ratio over the next 25 years is moderate (Figure 2.1, Panel D), reflecting higher past fertility and working-age immigration (OECD, 2025[1]). Moreover, regular reviews of the state pension age since the Pension Act 2014 constitute a safety valve for the system.
However, significant fiscal risks remain. The “triple-lock guarantee”, whereby the pension entitlement is indexed annually by the highest of earnings growth, consumer price inflation or 2.5%, exposes public finances to macroeconomic volatility and turned out substantially more costly than initially anticipated (Figure 2.2, Panel A). Moreover, despite high employment levels in international comparison, weakness in labour force participation since the pandemic puts pressure on the pay-as-you-go financing base (OECD, 2024[7]).
Note: Panel A refers to the additional fiscal cost of indexing state pensions by the triple lock relative to earnings indexation; expected refers to the Office for Budget Responsibility's initial costing; amounts are in nominal terms; see OBR (2025[2]) for details. Panel B refers to the share of people aged 35-59 with projected pension incomes below Pensions UK's minimum living standards; categories overlap; see Cribb et al. (2024[8]) and O’Brien et al (2024[9]) for details.
Source: Institute for Fiscal Studies; Office for Budget Responsibility; and OECD calculations.
In addition, some demographic groups, including women, save too little to achieve adequate retirement incomes, measured by either the Pensions Commission’s “target replacement rates” (DWP, 2025[10]) or the occupational pension industry body’s “minimum living standards” (Figure 2.2, Panel B). The self-employed are at high risk of inadequate private pension savings, mostly reflecting low enrolment rates. Low earners and people in part-time employment are also more likely to fall short of minimum living standards.
Preserving the pension system therefore requires addressing both fiscal sustainability in state pensions and adequacy gaps in private pensions. This chapter focuses on four priorities: reforming the indexation rule of the state pension to mitigate fiscal risks; promoting labour market participation and employment to strengthen the pay-as-you-go financing base; extending automatic enrolment in private pensions for the self-employed; and enhancing family policy to reduce pension gaps between men and women.
Other pension-related issues are discussed elsewhere in this Survey or in previous issues. These include the long-run impact of pension reforms on public debt sustainability (Chapter 1); the effect of pension funds’ declining demand for government debt on borrowing costs (Chapter 1); and the government-led impulse to leverage pension funds and support domestic investment (Chapter 1). Finally, pensions largely reflect past labour market participation and outcomes. Issues related to labour market disparities, especially for people with self-reported work-limiting conditions, care-taking responsibilities or low skills, were discussed in-depth in the special chapter of the last Economic Survey (OECD, 2024[7]).
Public expenditure on state pensions and other pensioner benefits was close to 6% of GDP in FY2024-25 (OBR, 2025[2]). Although lower than in many OECD countries (Figure 2.1, Panel D above) and growing more slowly than spending on health and long-term care (Chapter 1), pension spending remains a key component of public finances. Addressing fiscal vulnerabilities associated with the triple lock and ageing is essential to avoid future tax increases or cuts to other public programmes (Chapter 1).
2.2.1. Reforming the triple lock is necessary to reduce fiscal uncertainty
Following reforms that effectively transformed the state pension into a quasi-universal, flat-rate benefit (Box 2.1 above), two main policy levers remain to manage long-term fiscal costs: the indexation rule and the state pension age.
The value of the state pension has grown substantially faster than earnings over the past 15 years (Figure 2.3, Panel A). This reflects the triple-lock guarantee, under which the pension increases annually by the highest of earnings growth, consumer price inflation or 2.5%. Together with the introduction of the new state pension, this reversed the trend decline in the value of the basic pension entitlement observed in the three decades prior to its implementation in FY2011-12 (Cribb, Emmerson and Karjalainen, 2025[11]).
Note: Panel B refers to the Office for Budget Responsibility’s long-term projections of state pension spending as of July 2025; the central projection assumes that annual indexation by the triple lock averages 0.53 percentage points above earnings growth in the long run; the lower (resp. higher) volatility scenario assumes that the annual indexation averages 0.11 (resp. 0.93) percentage points above earnings growth; see source for details.
Source: OBR (2025[2]) Fiscal Risk and Sustainability: July 2025; Office for National Statistics; and OECD calculations.
The triple-lock indexation mechanism is unusually generous in international comparison. Most OECD countries rely primarily on price indexation, leading to a decline in benefit ratios as real wages grow (OECD, 2025[1]). By contrast, in the United Kingdom, state pensions have increased annually by about 0.5 percentage points more than earnings and by almost 1.2 percentage points faster than inflation since FY2012-13. Generous indexation also has regressive distributional implications, benefitting wealthier and higher-income individuals more as they tend to live longer (Bozio, Rabaté and Tô, 2024[12]).
On top of adding upward pressure on public expenditure, the triple lock amplifies fiscal uncertainty by increasing the sensitivity of pension spending to earnings and inflation shocks (Figure 2.3, Panel B). In periods of macroeconomic volatility, when earnings growth and consumer price inflation exhibit large swings, the mechanism can generate sharp and unpredictable increases in pension expenditure. The issue is particularly acute following adverse terms-of-trade shocks, as during the 2021-2023 energy crisis, when prices first spike and then wages catch up, skewing risks upwards (Box 2.2). The mechanism had to be suspended in FY2022-23 following an exceptional spike in earnings growth to 8.4% due to the recovery from furlough and other pandemic-related measures.
The renewed increase in energy prices linked to the evolving conflict in the Middle East highlights the vulnerability of public finances to macroeconomic volatility due to supply shocks. In this context, reducing uncertainty around future pension spending would strengthen fiscal resilience and support more stable medium-term fiscal planning. A well-designed reform of pension indexation could help to smooth the fiscal impact of future inflation and earnings shocks while continuing to protect pensioners’ living standards.
The government should prepare a medium-term reform of the triple lock. Given political economy challenges and the existing commitment to the triple-lock guarantee over the current Parliament, the government’s effort should focus on setting the ground for lasting reform. The current Pensions Commission could be tasked with initiating this work and draw on the experience of the 2002-2006 Pensions Commission, whose analytical foundations and independence are broadly regarded as instrumental to ensuing reforms (Massala and Pearce, 2021[13]). Careful consideration of phasing-in arrangements for a smooth transition, as well as of distributional impacts, is an essential part of such preparations. Comprehensive consultations and clear communication with all relevant stakeholders are also required to build reform momentum.
Explaining how a new indexation mechanism will be designed to be both effective and fair is key to ensuring the public acceptability of the reform. An emphasis on distributional considerations will be important, including the fact that wealthier individuals live longer on average and thus benefit more from generous indexation. Clearly describing trade-offs will also be necessary, such as further rises in state pension age in the absence of reform or the need to increase taxes or cut public spending to address fiscal risks in the absence of reform. The new OECD Public Acceptability Tool can help to articulate the main dimensions that matter for improving acceptability (OECD, 2025[14]).
One possible reform approach would replace the triple lock with indexation based on the average of consumer price inflation and wage growth, as recommended in previous Economic Surveys (OECD, 2024[7]; 2022[15]; 2020[16]). Such an approach would reduce the sensitivity of pension spending to temporary macroeconomic shocks while continuing to allow pension incomes to grow over time. Back-of-the-envelope calculations suggest that, had such a mechanism been in place since FY2012-13, state pension spending would have been about 0.7% of GDP lower in FY2024-25 despite significant macroeconomic volatility over the period. At the same time, the value of the state pension would have grown by 3.1% per year on average, below earnings growth, but more than 0.3 percentage points above consumer price inflation.
The triple-lock indexation rule for state pensions creates a nonlinear and asymmetric link between macroeconomic outcomes and fiscal costs, which standard deterministic projections do not capture. Ongoing OECD research develops a policy-focused stochastic simulation framework to assess ensuing risks to state pension expenditure.
The framework relies on simulating the triple-lock indexation parameters (headline inflation and earnings growth) using simple autoregressive processes and contemporaneous correlations, calibrated to historical volatility and persistence. For each simulation path, annual indexation is applied as specified in legislation, i.e., the maximum of simulated inflation, simulated earnings growth, and 2.5%. It is then used to project state pension expenditure in the OECD Long-Term Model (Guillemette, 2019[17]).
Results show how the triple lock amplifies fiscal risks upwards, as well as the persistence of inflation and earnings shocks for medium-term expenditure paths (Figure 2.4). The framework allows to simulate the impact of potential indexation reforms on fiscal risks, including a smooth earnings link or an average of headline inflation and wage growth.
State pension expenditure (% of potential GDP)
Source: Department for Work and Pensions; OECD Long-Term Model; Office for National Statistics; and OECD calculations.
More gradual reform options could preserve a clearer link between pensions and earnings, while reducing fiscal volatility over time. One approach would be to index pensions to consumer price inflation, combined with periodic adjustments to maintain a stable relationship with average earnings over time, as in Australia (Box 2.3). Compared to the triple lock, this would reduce sensitivity to short-term inflation and wage fluctuations while still ensuring that pensioners are not left behind as wages and living standards rise over time. A gradual transition could preserve the current triple lock until pensions reach a targeted level relative to average earnings before moving to a benchmark indexation framework. Recent proposals of a “smooth earnings link” broadly follow this logic (IFS, 2025[18]; Resolution Foundation, 2020[19]).
Australia’s state pension system combines regular inflation protection with periodic adjustments linked to earnings growth. Pensions are indexed to consumer prices twice a year, preserving purchasing power. In addition, pension levels are periodically reviewed against a pre-agreed earnings benchmark and adjusted upwards if they fall below that level to ensure that pensioners continue to benefit from improvements in living standards.
This benchmark indexation mechanism balances adequacy and fiscal sustainability. On the one hand, the combination of price indexation with a level floor linked to an earnings benchmark prevents any decline in pension benefits relative to prices or wages, ensuring that pensioners share in real wage growth. On the other hand, the absence of a direct link to earnings growth limits fiscal risks stemming from macroeconomic volatility.
However, the choice of the earnings benchmark (currently about 30% of men average weekly earnings) involves a trade-off between adequacy and fiscal cost, and creates political economy challenges.
Source: OECD (2025[20]) Pensions country profiles: Australia 2025.
The statutory pension age constitutes the second main policy lever. It is effectively linked to life expectancy through regular reviews by an independent commission, with the guiding principle that individuals should expect to spend up to one-third of their adult lives in retirement. The state pension age is set to rise to 67 between 2026 and 2028, above the OECD average (OECD, 2025[1]). This helps to contain long-term spending pressures, as each one-year increase in the state pension age (conditional on demographic trends) is estimated to reduce state pension spending by 0.3% of GDP (OBR, 2025[2]).
The government should update legislation regarding future increases in state pension age, following the conclusions of the ongoing independent review expected in 2027. Ensuring that legislation reflects the appropriate timetable for changes to the state pension age would not only clarify long-term fiscal assessments, but also enable people to plan effectively for retirement, in line with the convention of providing a ten-year notice of changes. Prompt legislation would help to secure the current political consensus supporting a link between the statutory retirement age and life expectancy. In addition, maintaining regular and independent assessments of the rules regarding the pensionable age is key, considering factors such as life expectancy, fairness, and long-term fiscal sustainability.
Early retirement does not directly add pressure on public pension expenditure, as benefits cannot be claimed before the statutory pension age, contrary to many OECD countries. Moreover, the pension system provides an actuarially significant bonus to delay retirement beyond that age (OECD, 2025[1]). Nevertheless, the effective labour market exit age remained more than two years below the state pension age in 2024 (OECD, 2025[1]), weakening the financing base of the pay-as-you-go scheme, even though more recent LFS data suggests a slightly smaller gap. Strengthening labour market participation at older ages would reinforce the sustainability effect of increases in state pension age.
2.2.2. Maintaining high employment would bolster the pension financing base
Beyond indexation rules, the fiscal sustainability of the pay-as-you-go state pension system depends on the strength of the contribution base. Sustained labour market participation across cohorts, including both young and old, is therefore critical, as higher employment supports revenue from social security contributions and mitigates the fiscal impact of ageing.
The financing of state pensions remains robust, thanks to relatively high employment and wages, but recent weakness in labour market participation could start adding pressure (OECD, 2026[21]; 2026[22]). National insurance contributions, at 5.9% of GDP in FY2024-25, still cover state pensions and other contributory benefits (OBR, 2025[5]), although the line between social security contributions and general taxation has become increasingly blurred (Chapter 1). However, the employment rate remains below pre-pandemic levels, in sharp contrast with most other economies (Figure 2.5, Panel A), weighing on national insurance contribution receipts.
Note: Panel A refers to the share of population aged 15-64.
Source: OECD Education at a Glance (database); and OECD Labour Force Statistics (database).
Youth detachment from the labour market poses a particular concern for long-term sustainability. Labour market outcomes for younger cohorts have remained weak since the pandemic, with a particularly high prevalence of long-term sickness due to mental ill-health and neurodivergent conditions (DWP, 2025[23]; Banks, Karjalainen and Waters, 2024[24]). This is reflected in the relatively large share of youth not in employment, education or training (Figure 2.5, Panel B) and raises further concerns regarding future skills supply, hence productivity (Chapter 4).
Older workers’ labour force participation and employment have largely recovered following the pandemic, yet the effective retirement age remains more than two years below the state pension age on average (OECD, 2025[1]). While early retirement partly reflects the availability of private pension savings and wealth effects, weaker labour market participation for older cohorts is also due to occupational strain, with health limitations frequently reported as the main reason for inactivity (ONS, 2026).
Tackling inactivity has been one of the government’s priorities, especially among young people. The new Get Britain Working strategy acknowledges persistent regional disparities and reallocates some responsibilities and funding to subnational governments to better address local labour market needs, a welcome development (Chapter 4). In addition, the government announced a set of policies to improve school-to-work transitions by continuing to reform lifelong learning and apprenticeship (DfE, DWP & DSIT, 2025[25]), adding to policies advanced in successive fiscal events. Finally, the youth guarantee aims to ensure that all 16 to 24-year-olds have access to education, training, or help to find a job or an apprenticeship (DWP, HMT & DfE, 2025[26]). Monitoring outcomes will be key to ensure additionality and value-for-money.
However, incentives within the health-related welfare system continue weighing on labour supply, as discussed in depth in the last Economic Survey (OECD, 2024[7]). Progress on the necessary gatekeeping reform of the system has been constrained due to political pressure: while the government remains committed to strengthening incentives for people on incapacity benefits to re-enter the labour market by removing the work capability assessment, as recommended, it excluded the tightening of disability benefits from the reform package. A review is underway to tackle the issue of incapacity and disability benefits, in consultation with stakeholders (DWP, 2025[27]).
The government should sustain the impetus for advancing pro-work reforms in the health-related welfare system and in skills policy (Table 2.1). Swiftly following up on the conclusions from the ongoing Timms and Milburn Reviews is critical to deliver on the gatekeeping reform of incapacity and disability benefits, under which eligibility would depend solely on the personal independence payment assessment. Occupational health support, workplace adaptations, and return-to-work pathways after illness can help to support labour market participation for older cohorts (OECD, 2024[7]).
Attention to further work incentive issues in the wider tax-benefits system remains necessary, as the interaction between different income support schemes creates inactivity traps. The rise in health-related inactivity and resulting detachment from the labour market is partly due to changes in the relative level and conditionality of different forms of income support (Cribb et al., 2025[28]; OECD, 2024[7]). The recent removal of the two-child limit, which restricts child-related benefits to the first two children in a family, deserves scrutiny regarding potential disincentives to work: a significant share of households that are no longer bound by the limit are expected to become bound by the household welfare cap, from which those eligible for disability benefits can obtain an exemption.
When the fiscal situation allows (Chapter 1), indexing personal tax thresholds, especially for national insurance contributions, would strengthen incentives, especially at lower income levels. Reducing the complexity of the personal income tax system would also improve work incentives. In particular, the high-income child benefit charge (a tax that reduces or eliminates child benefit for households with income above a threshold) should be abolished, and the fiscal cost offset by raising the higher rate for income tax, as recommended in the last Economic Survey (OECD, 2024[7]).
Private pensions are an important complement to the state pension system and play a key role in supporting retirement incomes and limiting future fiscal pressures from ageing. They represent a significant component of the system, with expenditure around 3% of GDP and accounting for roughly a third of disposable income for retired households in their late 60s, while tax relief for private pension savings amounts to about 2% of GDP. However, private pensions disproportionately benefit richer households, leaving persistent adequacy gaps at the bottom of the income distribution and across groups, including the self-employed and women. Strengthening participation and contribution adequacy in private pensions will therefore be important to support living standards in retirement, particularly in the context of reforms to the triple lock, which could slow the growth of state pensions. The Pensions Commission has published a review of retirement income adequacy in spring 2026, with a particular focus on low earners.
2.3.1. Automatically enrolling the self-employed would boost replacement rates
Many self-employed have too little private pension saving to achieve adequate retirement incomes (Cribb et al., 2024[8]). Average pensions for the self-employed relative to those of employees are among the lowest in the OECD (Figure 2.6, Panel A). Lower pensions for the self-employed reflect their lower participation in private pensions (Figure 2.6, Panel B).
Note: Panel A refers to the theoretical pension of self-employed people with pension contributions equal to the (quasi-)mandatory amount; see OECD (2025[1]) for details. Panel B refers to enrolment by eligible employees and the self-employed; see source for details.
Source: OECD Pension at a Glance (database); and OBR (2025[2]) Fiscal Risk and Sustainability: July 2025.
Voluntary pension saving arrangements deliver comparatively weak contribution rates among the self-employed. This is partly due to the rising share of self-employed with lower and more volatile earnings, which might have depressed savings at the bottom of the distribution and is estimated to account for about a third of the decline in self-employed participation observed until the mid-2010s (Karjalainen, 2023[29]). In addition, the self-employed who participate in private pensions tend to make constant contributions in nominal terms over the career, in contrast with employees, whose nominal contributions mechanically increase with earnings.
The government should extend automatic enrolment to the self-employed to boost pension participation and improve savings adequacy. Such a reform could leverage the National Employment Savings Trust, which has a public service obligation to accept the self-employed, and be implemented through the self-assessment tax return. Alternatively, a less ambitious approach would require the self-employed to actively select their pension contribution rate when filing their tax return, introducing a behavioural nudge that is expected to increase participation relative to the current fully voluntary system (IFS, 2025[18]).
As the self-employed form a heterogenous group, preserving the right to opt out of pension savings is important. For the self-employed with low lifetime earnings, low retirement incomes primarily reflect weak labour market outcomes rather than inadequate savings. In that case, requiring disproportionately high pension contributions does not improve welfare. While improvements to pension design, such as automatic enrolment, can contribute to addressing participation gaps, labour market policies remain key to boosting earnings, hence retirement incomes. Closing unwarranted tax and regulatory gaps between regular and non-standard forms of employment would also help (Chapter 1). For small business owners, many of whom face liquidity constraints, compulsory pension contributions would reduce the cash flow available to fund operations. By contrast, for the self-employed at the top of the earnings distribution, the accumulation of savings other than pensions, including business assets and financial wealth, weaken the case for further savings.
2.3.2. Completing the childcare reform could help to narrow the gender pension gap
Women are less likely than men to reach minimum living standards in retirement, reflected in one of the largest gender pension gaps in the OECD (Figure 2.7, Panel A). This mostly reflects differences in hours worked over the career (Figure 2.7, Panel B), as gender gaps in both career duration and hourly wages are close to the OECD average (OECD, 2025[1]). Private pensions tend to amplify these labour market disparities, while state pensions attenuate them, in part thanks to the decreasing importance of the earnings-related component (Box 2.1 above).
Note: Panel A refers to the difference in mean retirement income between male and female pension beneficiaries aged 65+ as a share of men’s mean retirement income. Panel B refers to the share of workers aged 15-64 who usually work less than 30 hours per week in the main job.
Source: OECD Labour Force Statistics (database); and OECD Pensions at a Glance (database).
Gender pension gaps due to low hours worked over the career are exacerbated by the current design of auto-enrolment, as it excludes employees earning less than GBP 10 000, disproportionately women. Removing this floor and ensuring that employers contribute irrespective of earnings level would contribute to reducing the gaps. It would also support private pension savings among the self-employed when automatic enrolment is extended to them (see above).
Women’s lower hours worked reflect disproportionate family or caring responsibilities, as discussed in the last Economic Survey (OECD, 2024[7]). The combination of unequal sharing of unpaid work and limited availability of affordable childcare creates barriers to female labour supply, as it raises the opportunity cost of gainful employment (Gonne and Trincão, 2024[30]). This results in part-time employment and labour market detachment for many women, hence in lower lifetime private pension contributions. Paid parental leave entitlements are also particularly low in international comparison (OECD, 2024[31]).
The recent childcare expansion improves affordability significantly and promotes labour market participation (OECD, 2024[7]). The expanded entitlement provides working parents with 30 hours of childcare per week for 38 weeks per year for each child aged nine months to five years. The expansion was successfully phased in, meeting all interim implementation milestones.
Risks from childcare supply bottlenecks remain, considering the scale-up needed to accommodate the increase in demand and widespread labour shortages in the care sector. This could slow and constrain the reform, as discussed in the last Economic Survey (OECD, 2024[7]). Moreover, concerns regarding low funding rates have not been addressed yet, although they could incentivise childcare providers to prefer hours above the entitlement at a premium to the free entitlement, hence pricing out the less well-off. The government intends to create enough new nurseries in unused primary school classrooms to address the issue by FY2028-29 (HMT, 2025[32]), but a prioritisation strategy is lacking for the transition.
The government should enhance the tracking of childcare demand at the local level to better identify where supply constraints are most binding. Combining existing information on childcare provision, already collected through registered childcare providers, with more systematic data on unmet demand, including waiting lists maintained by local authorities, would support the prioritisation of resources to areas with the most excess demand. Continuing to step up family policy is warranted, notably regarding childcare support for jobseekers and parental leave (Table 2.2).
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