IFS Pensions Review: How ELSA helped us develop recommendations for a better pensions system

Key challenges face the UK pension system and future generations of pensioners. An ageing population places public finances under strain, and a higher state pension age has led to increased poverty rates for people in their mid-60s. Many are saving only very low amounts for retirement, and face potentially high housing costs into older age if they remain in private rented housing. Through retirement, people face enormously difficult decisions about how to draw upon their “defined contribution” pensions (which provide a pot of funds rather than the promise of a pension income).

Faced with these challenges, a team of economists at the Institute for Fiscal Studies have been reviewing the future of the pension system for the past two and a half years, with our final recommendations published in early July (Cribb et al., 2025). The publication of our review comes at a key point for pensions policy, with the government expected to launch its own reviews of the state pension age and of the adequacy of pension savings in the next few weeks.

Data from the English Longitudinal Study of Ageing (ELSA) has proved crucial throughout the IFS Pensions Review, in especially in providing information on people’s retirement resources and expectations over time. This is important for thinking about policy with regards to both the state pension age, and the management of pension wealth during retirement.

The state pension age

The state pension age (SPA) is a key moment for individuals as they get older; access to the state pension (and the pensioner benefits system more generally) provides greater financial security from this age onwards, and many people also retire around the same time. It is therefore important that, as the SPA rises, people understand when they will reach it. However, analysis using ELSA conducted as part of our Review (Karjalainen 2025, see Figure 1), shows that knowledge of the state pension age is far from complete, making it harder for people to plan for retirement.

Between 40% and 60% of people in their late 50s know their pension age, meaning significant numbers either do not know, or may be making plans based on faulty knowledge. These misperceptions underlie our recommendations that the government should write to all people a round their 50th birthday setting out their expected pension age, and should again write to people confirming their pension age 10 years before they reach it, to provide additional certainty for people planning and preparing for their retirement.

Figure 1. Percentage of people correctly reporting their state pension age (within three months), by age (and state pension age)

Furthermore, we have used ELSA data to show that increasing the state pension age is more regressive way of controlling the cost of the state pension system compared to limiting the generosity of the level of the state pension. And certain disabilities, such as having difficulties with activities of daily living or experiencing depressive symptoms before the age of 65, are associated with lower life expectancy – so people with these disabilities more affected by increases in the state pension age (Cribb, Emmerson, and Karjalainen 2023).

These findings support our recommendations that – while it is appropriate for the state pension age to continue to rise – it should only rise when life expectancy at older ages increases. And when it does, targeted increases in means-tested benefits for people a year below state pension age should be used to help alleviate financial difficulties caused by the rise in the SPA for the hardest hit groups.

Managing pension wealth in retirement

Many people face enormous difficulties working out how to draw upon their private pension wealth. This is partly because of the policy environment; most people save into “defined contribution” pension schemes which provide a “pension pot” rather than a pension income, and since 2015 people can draw upon these pots in any way they choose. But it is also because people face a wide range of risks and uncertainties in retirement.

Most notably, people do not know when they are going to die, and do not know how the investments in their pension pot will perform. Analysis of ELSA data (Cadar et al 2020; Boileau et al 2025) reminds us of another risk: the risk of cognitive decline which makes it harder to make already-difficult financial decisions.

ELSA data also shows how these issues are increasing in importance over time, with rising numbers of people approaching retirement with “defined contribution” pension pots as opposed to traditional “defined benefit” arrangements (Figure 2).

Figure 2. Share of 55- to 64-year-olds with (a) just defined contribution, (b) both defined contribution and defined benefit and (c) just defined benefit pension wealth

Our analysis of ELSA also shows that most (but not all) people are currently making fairly low stakes decisions with this type of wealth (because it is either low in value, or as a fraction of their total wealth, or both). But while the stakes of these financial decisions are currently relatively low for most, that is set to change with increasing amounts saved in these pension pots.

ELSA also shows that three-quarters of people in their late 50s get no information, advice or guidance about their retirement or pension choices, meaning many are open to making serious financial mistakes in the future (Boileau, Cribb, and Emmerson 2025). The ability to use ELSA to examine this is particularly important because of increasing concern about the quality of the other major UK survey which measures private pension wealth, the Wealth and Assets Survey.

In response to these risks, we think it is crucial that reforms are introduced to make decisions over how to draw on pension pots far simpler. We think that most people should be steered by pension providers towards products that allow them to flexibly draw their pension earlier in retirement, but later on involve the purchase of an “annuity” (income guaranteed for life). This would mean that people do not have to make decisions about how much to withdraw at older ages, and do not need to worry about running out.

Conclusion

The IFS Pensions Review provides a concrete blueprint for improvements to the UK’s pension system, with recommendations on the state pension system, means-tested benefits, how automatic enrolment should be improved for employees, how self-employed people should have pension saving facilitated for them, and regarding the use of pension wealth in retirement. Alongside other data sources from UK surveys, administrative data from government, and qualitative interviews with individuals, ELSA data has provided a key resource for us in building evidence of current issues and helping to suggest improvements to the UK pension system. 

References

Boileau, B., Cribb, J., and Emmerson, C. (2025) Individuals’ challenges managing pensions through retirement, IFS: London

Cadar, D., Abell, J. and Steptoe, A., (2020). Cognitive impairment and dementia in older English adults: risk factors and diagnostic algorithms. In J. Banks, J. Nazroo, A. Steptoe and P. Zaninotto (eds), The Dynamics of Ageing: Evidence from the English Longitudinal Study of Ageing 2002–2019 (Wave 9), https://www.elsa-project.ac.uk/_files/ugd/540eba_a521228fef944892b2942d6135be6734.pdf.

Cribb, J., Emmerson, J., and Karjalainen, H. (2024) Means-tested support for people approaching and beyond state pension age, IFS: London

Cribb, J., Emmerson, J., Johnson, P.,  Karjalainen, H., and O’Brien, L (2025) The Pensions Review: Final recommendations, IFS: London

Karjalainen, H. (2025) How aware are people of next year’s state pension age increase?, IFS: London

Image courtesy of Centre for Ageing Better