DWP figures reveal accelerating shift away from guaranteed pensions
New data from the Department for Work and Pensions (DWP) has laid bare a worrying trend in the UK's retirement outlook, with a growing number of pensioners now having to cope without the guaranteed income that previous generations enjoyed. The figures show that the proportion of people accessing private pensions for the first time via a lump sum or other defined contribution (DC) product rose from 280,000 in the 2016/17 financial year to 410,000 in the 2025/26 financial year.
This represents a significant increase of 130,000 people over the period, underscoring a fundamental shift in how retirement incomes are structured in the UK. Samuel Mather-Holgate, managing director and independent financial adviser at Mather and Murray Financial, described the country as entering an era of "pension inadequacy."
Andy Burnham's new government and its impact on pensions
The news comes as Prime Minister Andy Burnham takes office, promising that his Labour Party government will be a "cost of living" one. The Makerfield MP has vowed to keep the triple lock, which protects the state pension from inflation, in a boost for state pension claimants. He has also cut bus fares, reduced VAT on electricity bills, and offered business rate cuts for some hospitality venues. These early measures suggest that pensioners may find life slightly easier under Mr Burnham's leadership.
However, the DWP data indicates that the underlying structural change in pension provision is continuing apace. Mather-Holgate explained: "Essentially, we are now transitioning from the gilt-edged 'Defined Benefit' pensions of old where income was guaranteed until death to pensions based on 'defined contributions', where a pot will last as long as it can and is at the mercy of markets. And it's a shift that is accelerating."
Experts warn of 'pension inadequacy' as DB schemes decline
The shift away from defined benefit (DB) schemes, such as final salary or career-average pensions, is a major concern for financial advisers. Mather-Holgate highlighted the disparity between public and private sector workers: "People with DB pensions, whether final salary or career-average, such as the NHS CARE scheme, have a security in retirement that most private sector workers will soon no longer enjoy. A generation of workers has effectively been switched from a retirement promise to a retirement savings account, often without fully understanding the difference."
He added: "And this is the point at which a person's failure to invest appropriately for their retirement comes home to roost as the State pension will prove woefully inadequate for most." The warning comes as many workers rely heavily on auto-enrolment (AE) as their primary retirement savings vehicle, which may not be sufficient.
Auto-enrolment: a starting point, not a complete plan
Mather-Holgate stressed that auto-enrolment should be just the beginning of retirement planning, not the entirety of it. "AE should be the starting point, not the whole retirement plan but, due to a lack of education around pensions, that is what it has become," he said. This lack of understanding, combined with the pressures of the cost of living crisis, means many people are not saving enough for their later years.
He warned: "Britain, as the latest DWP figures reveal, is now formally moving from guaranteed retirement incomes to incomes based on personal responsibility, but too many people have not adjusted their savings accordingly." Mather-Holgate acknowledged the challenges of saving during a cost of living crisis but urged people to focus on the long term: "Yes, we're in a cost of living crisis and finding any money spare at the end of the month is challenging but people need to have one eye on the future and save as much as they possibly can."
Every penny counts in the new pension landscape
As retirement incomes become increasingly dependent on personal investments, the importance of every contribution is magnified. "As people's retirement incomes become dependent on what they have invested, literally every penny invested into a pension counts," Mather-Holgate concluded. The DWP data serves as a stark reminder that the era of guaranteed pensions is fading, and individuals must take greater responsibility for their financial security in retirement.
