Tony Blair Institute’s radical proposal to overhaul state pension

Former prime minister Tony Blair during SXSW London in June 2025. Photo: Jack Taylor/Getty Images for SXSW London.

In recent years there’s been no shortage of debate around how to improve the long-term sustainability of the state pension.

Proposals have ranged in extremity, from the removal of the triple lock to more drastic reforms such as increasing the state pension age to 75 or means-testing the universal benefit.

But the Tony Blair Institute (TBI) – the think tank founded by the former prime minister in 2016 – has just proposed the most radical overhaul in recent times.

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Tony Blair’s proposal

The TBI’s proposal is to replace the state pension in its current guise, with a new, more flexible “Lifespan Fund”.

Rather than paying everyone over state pension age set payments, based on their national insurance contributions (NIC), the Lifespan Fund would look more like an annuity.

Individuals would be free to decide when they want to start taking their pension, with the payment they receive personalised to reflect their age and state of health.

As with an annuity, the younger and healthier you are when you start, the lower the income you would get.

The report said: “To save citizens time and reduce bureaucracy, the calculation could draw on an individual’s NHS health record, with safeguards to protect privacy and ensure the system does not reward unhealthy lifestyle choices, such as smoking.”

Safeguards would also be in place to prevent people taking their funds early and becoming reliant on other means-tested benefits when they’re older.

More radical still, individuals will also be able to access their fund during their working life, if they’re not working for a period of time – once they have built up a minimum balance.

“The principle would be that in order to access their fund, individuals would have to be engaged in activities that were boosting their future earning potential or otherwise socially useful, not just taking leisure time or using funds to boost consumption,” the report stated.

When you return to work, your NICs would be increased by up to 5% of your earnings to rebuild your fund. Alternatively, if you have sizeable private pensions, you could opt out of top-ups.

The new system would be based on a notional entitlement of £250,000 (£12,500 a year for 20 years). But some people may end up getting more if they live longer than expected, the cost of which would be offset by the savings made when people die sooner than anticipated.

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Contributions to the Lifespan Fund would be based on “active contribution to society,” including work, full-time education or caring. And, to deliver the equivalent of 20 years support, individuals would need to make 40 years’ of contributions.

Currently, individuals need 35 years of national insurance contributions to receive the full state pension.

The triple lock – which guarantees the state pension will rise each year by the greater of earnings growth, inflation or 2.5% - would also be scrapped. Instead, payments would increase based on a “smoothed link with median earnings” – preventing values from reducing in real terms.

While individuals currently need to submit a state pension forecast to check their entitlement, users of the Lifespan Fund would be able to check their position on a dedicated app. This would show their current balance, the number of years earned, projected income and eligibility for withdrawals or top-ups.

The thinking behind the Lifespan Fund

The TBI says that the Lifespan Fund will be more affordable long term, tackling what is ultimately the biggest challenge for the current state pension.

By 2070, the cost of the state pension is expected to reach 7.8% of GDP, but if TBI’s proposals were to be adopted, it would bring that cost down to 5.5%. Although that’s still an increase on the current 5%, the think tank said it will save £66 billion a year in today’s money.

The report stated: “Under the Lifespan model, the number of years of state support would be held constant at 20 years per person, meaning the state pension age effectively rises one-for-one with life expectancy. As people live longer, the value of their annual pension adjusts accordingly, keeping the system sustainable without the need for repeated political battles over future pension ages.”

The TBI also says that the new system would be fairer and more flexible.

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Under the current system – where everyone has the same state pension age – a healthy person who lives into their 90s, will get a much greater benefit than less healthy individuals who die in the 60s or 70s. With the Lifespan Fund, those who are in poor health (or older) when they start taking benefits would get a higher income to reflect the fact that they have a shorter life expectancy.

This would also address wealth discrepancies.

According to research from the Institute for Fiscal Studies (IFS), a woman born in 1955, whose wealth is in the lowest quintile, would only have a 40% chance of claiming 20 years of state pension. That compares to 75% for a woman in the top quintile.

And, in giving individuals the ability to decide when they start taking benefits, TBI argues its approach suits changing retirement patterns.

This could help more people balance the challenges they may face in their late 50s or early 60s – whether that’s their health, caring commitments or unemployment.

It could also give people the flexibility to take time out of work mid-life to retrain for a new career.

Winners and losers

The introduction of personalised payments based on life expectancy means there will invariably be winners and losers under the proposals.

It’s likely that those with a shorter life expectancy will be better off under the proposals while retirees in rude health would fare better under the current system.

People who want to retire early may also benefit from the removal of a fixed retirement age – even if it means they have reduced income as a result.

What next?

Commenting on the proposals, Tom Smith, director of economic policy at the Tony Blair Institute said: “Britain’s state pension system was built for a different era. We can’t keep pouring money into a system that is increasingly unaffordable. Pension spending must be contained, and that means the triple lock cannot continue after the next election. Ending it will require political leadership from all parties – but that should only be the first step. Real reform must also build a better system: one that is fairer, more flexible, and designed for how people live today.”

But while some commentators have suggested that Tony Blair carries more sway than he did when he was prime minister, that’s not to say the proposals will be adopted.

There has already been significant backlash against both the concept of personalised payments and giving the DWP access to private NHS data.

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Steve Webb, partner at pension consultants LCP – and former pensions minister – described the proposals as intrusive and shocking.

“Leaving aside issues of confidentiality and data quality, it is very hard to make a precise leap from health records to life expectancy. The report says that they would not want to pay higher pensions to those who had poorer health because of lifestyle choices such as smoking, but it is very hard to see how they would exclude the impact of smoking on someone’s overall health.”

He added: “We have just created a new state pension system which is relatively simple and standardised and which forms a firm basis for retirement planning. It would be a huge backward step to replace it with something fiendishly complex and highly intrusive, and which would take many decades to implement in full.”

But while the Lifespan Fund itself may, arguably, be a political step too far, some of the report’s less controversial suggestions (such as changes to inflation protection and increased flexibility) could still shape future policy.

Such proposals inevitably divide opinion, but a welcome result, wherever you stand, would be that the report sparks fresh debate around one of the biggest financial challenges of our times: how to make the state pension more flexible, sustainable and workable for the next generations of retirees.