In April and May 2025, J.P. Morgan Asset Management conducted a survey on savings behaviour in the UK. One of the key findings was that the British population has very high expectations of the role the state will play in supporting them in their older years. This optimism is particularly prevalent in younger cohorts: 40% of 18 to 34 year olds believe the state will be at least as generous as it is today in its provision of pensions, health and elderly care when they retire.

The optimism among individuals, however, sits uncomfortably with the outlook for the UK’s long-term fiscal position. The difficulty the current chancellor faces in balancing the books is no secret, but these are not short-term challenges: they have been a headache for recent governments, and they will be for governments of the future. At the same time, today’s fiscal concerns are dwarfed by the structural challenges facing the economy due to our ageing population.

There is little political incentive for governments to warn future generations of problems ahead. However, the lack of understanding of the UK’s fiscal challenges deprives people of time to make their own provisions for a comfortable retirement. While not a cheery read, this report aims to drive a more realistic long-term conversation about the role the state will play in retirement support for future generations.

Getting older: A privilege and a curse

The UK fertility rate has been on a continual decline and now sits at just 1.4 births per woman on average. This decline, coupled with rising average life expectancy, has resulted in an ageing population that will only worsen in the coming decades.

When the baby boomers were in their mid-30s, the retirement dependency ratio, which measures the number of people of retirement age relative to the working-age population, stood at 0.26 retirees for each person working. With the baby boomers now transitioning to retirement, the dependency ratio has deteriorated, and will continue to do so. By the middle of the century, there will be 0.48 retirees for each working person.

As a population transitions towards more people retiring and fewer working, this brings about significant economic challenges – and a large headache for governments now and in the future. All else equal, fewer people working slows economic growth and, in turn, reduces tax receipts. Government outlays increase, as retirees demand the pensions, health and social care they feel they were promised, and which they’d paid for with their taxes during their working years. Of course, the UK’s pay-as-you-go system means that this tax money was not stored, but paid out to retirees at the time.

You can’t please them all

Faced with a rapidly ageing population, trying to balance the books will remain a persistent challenge for the UK government. Now and in the future, policymakers essentially have five choices:

1. Please the retirees by maintaining the pensions and services they rely on and asking those working to pay more tax.
2. Please the working population by reducing the provision of pensions, health and elderly care available to retirees.
3. Please both segments of the electorate by borrowing the shortfall.
4. Allow higher migration so there are more taxpayers to support the older cohort.
5. Drive a recovery in productivity so the remaining workforce produces more GDP and tax receipts without an increase in the individual tax burden.

Let’s look at the feasibility of these options.

1. Please the retirees

Keeping retirees happy by asking the working population to pay more tax is becoming increasingly challenging. The amount of tax paid relative to the size of the UK economy is already close to 37%. Meanwhile, the top 1% of UK taxpayers are responsible for 29% of total income tax revenue. The issue with raising these shares further is the damage it may do to economic growth, innovation and productivity, particularly if the UK stops attracting highly geographically mobile high earners.

2. Please the workers

Pleasing the working population by rationing or means-testing the provision of pensions, health care, and elderly social care is economically more sensible but politically impossible. Older segments of the population are far more likely to vote. The gold-plating of the UK’s grossly inequitable pensions triple-lock provides a case in point.

3. Borrow the difference

Keeping both retirees and workers onside by borrowing the difference between government spending and tax receipts from global investors was a particularly attractive option during the period of low interest rates. But with global interest rates now higher, the UK government has to compete to borrow in a global market in which investors are wary of governments that lack a credible long-term fiscal plan. Even if interest rates moderate a little from here, the trajectory of the cost of the UK’s debt over the coming years should deter governments from choosing borrowing as a long-term solution to the UK’s ageing population.

4. Increase migration

Another way to balance the books is to allow a lot more migration, to increase the number of taxpayers. But again, this looks like an option that makes economic sense but faces political opposition. Recent data suggests that migration is a top concern for the electorate, almost as important as the economy. As a result, political parties that have adopted a clear anti-migration stance have seemingly gained considerable momentum in the UK, affecting the narrative the other key political parties are choosing to put forward.

5. Boost productivity

A revival in productivity is the only solution with the potential to please everyone. Workers and firms would produce more output, and therefore tax, without the need for personal tax rates to rise. Retirees, in turn, get the pensions, health and social care they want. Buyers of UK government debt are pleased that no more is asked of them and the repayment, in real terms, of the money they have lent to date is secure.

The problem is that productivity growth is incredibly hard to deliver. It has been stagnant for a number of years now, despite numerous government interventions aimed at trying to entice investment. While new technologies, including artificial intelligence, offer hope of an uptick, as yet there is very little sign of productivity growth taking off.

The Office for Budget Responsibility – the UK fiscal watchdog – does already assume some recovery in productivity in its long-term forecasts for government debt, though even that is not enough to stop its debt-to-GDP forecast climbing to almost 300% in 50 years’ time. If, however, productivity stays near its current levels, UK government debt could be on course to reach over 600% of GDP.

Running out of road

Given the difficulties associated with all of the options above, what is the most likely outcome for UK fiscal policy? We suspect more of what we’ve already seen. Policymakers will likely continue with careful balancing acts at each fiscal event, announcing a few tax hikes and a bit of spending restraint, all the while praying that policy measures result in the much-needed productivity revival.

However, this approach carries the risk that whole generations will reach retirement age and not receive the level of pensions, health care and social care from the state they had expected. And by then it will be too late for those households to salvage their situation with their own savings.

Those with above-median earnings should be particularly alert to these risks, since the government will have to focus its funds on those least able to provide for themselves. However, our survey suggested higher earners were more likely to be complacent about state support.

Younger cohorts should also be particularly alert, since the pressures will grow through time. But again, our survey showed the opposite. Older generations have begun to understand the realities they face, while those early in their careers – who could put themselves on the path to secure retirements – are instead the most optimistic about what the state will provide them.

Knowledge is power

This report is designed to address a topic that is a political taboo. Our population is ageing in a way we cannot afford. There are no easy answers for governments, now or in the future. Those in the pension and lifetime savings industry should be aware of the reality of the situation, so they can support individuals who have time to save and privately create the retirement outcomes they desire. The truth can be uncomfortable, but knowledge is power.

This brings us to a separate topic, which our survey also covers: how people are saving for retirement today. Our thoughts on how investors' suboptimal decisions are limiting their growth in wealth—and how that in turn is damaging productivity and the overall economic outlook—can be read in our accompanying paper, The UK’s savings opportunity.