A long‑term, self‑directed investor cannot control markets or governments, but she can choose assumptions that keep her plan intact when she is old and cannot repair mistakes. Taxation is the variable most likely to change, and the one she has the least influence over. The only coherent stance is to assume away the promises that are politically fragile and to treat any future generosity as upside rather than foundation.

Assume you will not receive the UK State Pension

The State Pension is not a funded pot with her name on it. It is a pay‑as‑you‑go promise, revisited annually, funded by future taxpayers who have not yet voted. Demographic pressure, fiscal strain, and political incentives all point in the same direction: the benefit is adjustable. The investor cannot know how it will be adjusted, only that it can be. The only assumption that is robust across all political futures is to plan as if it will not be paid. If it arrives, it strengthens a plan that already works; if it does not, she is not exposed.

Assume defined benefit pensions will be taxed more heavily

Defined benefit pensions—especially those that have been subsidised or underwritten by the State—are structurally attractive tax targets. They are visible, concentrated, and politically defensible to tax more heavily, particularly relative to younger cohorts with weaker pensions. A rational investor should therefore assume that DB income will face higher taxation in future. This is not a prediction of a specific policy; it is an acknowledgement that, under fiscal pressure, governments will look for revenue sources that can be justified as “clawing back” prior support.

The assumptions a DIY investor should make about future taxation

A long‑term, self‑directed investor cannot control markets or governments, but she can choose assumptions that keep her plan intact when she is old and cannot repair mistakes. Taxation is the variable most likely to change, and the one she has the least influence over. When you project the UK’s public finances forward to 2040, even under generous assumptions, the numbers do not close without targeting pensions. The only coherent stance is to assume away the promises that are politically fragile and to treat any future generosity as upside rather than foundation.

The structural pressures that shape every 2040 projection

By 2040 the UK will have roughly four to five million more people over 65, fewer workers per retiree, and a pay‑as‑you‑go pension system designed for the opposite demographic shape. Age‑related spending—State Pension, NHS, and social care—rises by around two to three percent of GDP even under conservative assumptions. Debt interest remains structurally high because the debt stock is large, leaving an annual interest bill in the region of eighty to one hundred billion pounds even if rates drift down. These forces compound a baseline deficit that is already close to ninety billion pounds.

When you combine these pressures, you reach a simple arithmetic result: the UK faces a structural gap of roughly one hundred and fifty to two hundred billion pounds a year by the late 2030s. This is not a forecast; it is the shape of the problem under almost any reasonable set of assumptions.

The additional pressure of higher defence spending

Moving defence spending from roughly two and a half percent of GDP to five percent adds another fifty to sixty billion pounds a year in today’s terms. This is not optional if the geopolitical environment continues to deteriorate. When you add this to the existing structural gap, the total pressure rises toward two hundred and twenty to two hundred and sixty billion pounds a year by 2040. No combination of “normal” tax rises or efficiency savings can close a gap of that size without touching pensions.

The limited set of politically viable levers

When you try to close a quarter‑trillion‑pound gap, the menu is short. Large rises in income tax, VAT, or corporation tax are politically difficult and economically damaging. Cuts to health and social care are politically impossible. That leaves the areas where governments can raise revenue slowly, opaquely, and with a narrative of fairness: the State Pension, defined benefit pensions, and private pension withdrawals. These are the levers that can be pulled without triggering immediate political revolt.

Assume you will not receive the UK State Pension

The State Pension is not a funded asset. It is a political promise, revisited annually, funded by future taxpayers who have not yet voted. In a world where the UK must close a structural gap of two hundred billion pounds and double defence spending, the State Pension becomes the softest target. The most robust assumption is to plan as if it will not be paid. If it arrives, it strengthens a plan that already works; if it does not, you are not exposed.

Assume defined benefit pensions will be taxed more heavily

Defined benefit pensions—especially those subsidised or underwritten by the State—are concentrated, visible, and perceived as privileged relative to younger cohorts with weaker pensions. They are the most politically defensible tax base available to a future Chancellor facing a structural gap of this scale. A rational investor should therefore assume that DB income will face materially higher taxation by 2040. This is not a prediction of a specific policy; it is the only assumption that remains coherent when you run the numbers forward.

What these assumptions do to a DIY investor’s plan

Removing the State Pension from the plan and assuming heavier taxation of DB income forces clarity. Savings must be sufficient to fund retirement without State support. Asset allocation must treat the portfolio as the primary engine of later‑life income. Withdrawal strategies must work without a guaranteed floor. Tax‑wrapper diversification becomes structural rather than cosmetic, because future governments are more likely to tax private wealth than cut politically sensitive spending.

A simple 2040 balance sheet in real 2026 pounds

To understand why pensions become the unavoidable target, it helps to look at a simple, inflation‑adjusted balance sheet for 2040. These are not forecasts; they are directional estimates that show the scale of the pressures the UK must absorb.

Baseline deficit (2026): ~£90bn

Additional age‑related spending by 2040: £60–80bn

Debt‑interest costs in 2040: £80–100bn

Total structural gap before defence: £150–200bn

Now add the geopolitical requirement to raise defence spending from roughly 2.5% of GDP to 5%. In real terms, that is an additional £50–60bn a year.

Total structural gap including defence: £200–260bn per year

This is the number that matters. It is the gap that must be closed every year, in real terms, by 2040. No combination of normal tax rises or efficiency savings can close a quarter‑trillion‑pound hole without touching pensions.

Income tax, VAT, and corporation tax cannot be doubled. Health and social care cannot be cut. That leaves the politically viable levers: eroding or means‑testing the State Pension, taxing defined benefit pensions more heavily, and taxing private pension withdrawals and wealth.

The arithmetic does not point to these options because they are desirable. It points to them because they are the only levers large enough, slow enough, and politically survivable enough to close a gap of this size.

The stance that preserves autonomy

The arithmetic of 2040 is not a matter of ideology. It is a matter of scale. When you combine demographic pressure, rising age‑related spending, persistent deficits, high debt interest, and a doubling of defence spending, the UK must find roughly two hundred billion pounds a year. The only politically viable path is to erode, means‑test, or remove the State Pension and to tax defined benefit pensions more heavily. A DIY investor cannot control this, but she can choose assumptions that leave her future self unharmed.

The assumptions that keep her plan intact across the widest range of plausible futures are simple: assume you will not receive the UK State Pension, and assume defined benefit pensions—especially those subsidised by the State—will be taxed more heavily. If reality turns out kinder, she gains upside. If it does not, she is already safe.