As we step boldly forward into January 2025, big changes are said to be on the horizon for pensions in the UK across 1001 different fronts. From long-awaited government reviews and new legislation, through the day of the dashboards and on to threatened inheritance tax hikes, if the pundits are to be believed then this year really promises to shake things up.
In this article, we take a look ahead to what might realistically be in store for us this year...
Pensions Review (Phase Two)
In December, news broke that the much anticipated second phase of the government's Pensions Review would be delayed. Phase Two, which was supposed to start before Christmas, is set to focus on retirement benefit adequacy and was expected to include plans to lower the minimum auto-enrolment age from 22 to 18 and to ensure contributions are made from the first pound earned. There were also suggestions that it might outline a schedule for increasing minimum contributions and encouraging retirement saving for the self-employed.
However, reports suggest the review has been delayed with the backing of the Chancellor, who is keen to avoid putting businesses under additional pressure after her Autumn Budget hit employers with a £25bn bill for extra national insurance contributions from April 2025. While the government insists that this second part of the review has not been "kicked into the long grass", no new date has been set for it to start. Realistically, this might be one to watch later in 2025 or in 2026.
Pensions Investment Review (Phase One)
In her November Mansion House speech and accompanying papers, the Chancellor set out plans for her first phase of pension reforms, with a particular focus on the Local Government Pension Scheme (LGPS) and defined contribution (DC) pension schemes. The proposed LGPS and DC reforms centre on minimisation of "fragmentation and inefficiency" through the consolidation of funds, with the aim of increasing the scale of pension investments to produce better value for savers and ultimately "unlock" UK economic growth.
Consultations on the proposed reforms were launched in November. The LGPS consultation does not apply to LGPS in Scotland and Northern Ireland, where it is yet to be seen what changes may be proposed. The DC consultation applies to schemes in England, Scotland and Wales. Both consultations are set to conclude on 16 January 2025, so we can reasonably expect to see some movement later this year.
Inheritance Tax
In the Autumn Budget, the Chancellor announced that for deaths from 6 April 2027 onwards, many lump sum and other death benefits will be included in the value of the deceased person's estate for Inheritance Tax (IHT) purposes. HMRC published a technical consultation on the implementation of this change, which closes on 22 January 2025, so it can be expected that we will hear more detail about how this will all work in practice later in the year.
In the meantime, there is some ambiguity as to precisely what funds are unavoidably caught by the new charge, and the scope of a proposed carve-out for insured benefits. Once more is known over the course of 2025, though, we expect to see and help develop solutions and perhaps even products for employers, individuals and possibly providers.
Dashboards
The pensions dashboards programme was first proposed all the way back in 2016 and this year marks a big step forward as the first pension providers are expected to connect to the dashboards ecosystem by April. Once live, dashboards will allow savers to access their pension information online, securely and in one place. If the programme lives up to the hype, it will not only provide savers with a clearer view of their savings across multiple providers, but also go some way to improving pensions literacy. While the public launch is not expected until 2026 or 2027, this year will be crucial for setting up the framework.
Virgin Media
At the end of the December, the Association of Consulting Actuaries, the Association of Pension Lawyers and the Society of Pension Professionals issued an update on their discussions with the Department for Work and Pensions regarding the adverse impact of the summer's Virgin Media case on the pension industry.
The details of this are (sensibly) under wraps for the moment. However, while the sailing may not be as plain as was hoped (simple retrospective validation of scheme amendments that would otherwise be void solely because written actuarial confirmation was not received or cannot now be found) we understand that there is still considered to be a realistic prospect for corrective legislation. The working group hopes to provide an update in the New Year.
Further insights may also be provided when the High Court considers (among other things) similar questions in the case of Verity Trustees Limited v Wood, which is due to be heard in February and March.
Another bumper year for the risk transfer market?
It is predicted to be another big year for the pension risk transfer market with a record number of transactions expected, and the market volume of buy-ins and buy-outs at the end of the year tipped by insurers to exceed £40bn. In addition, a new insurer is expected to enter the market. But while insurance is expected to remain the endgame for most schemes, many schemes have tipped into surplus, prompting trustees to take another look at their endgame options, with the result that run-on is increasingly seen as a potentially viable alternative. With strong defined benefit pension scheme funding levels expected to continue in the near future and the proposed changes to legislation to incentivise run-on, it is likely that the run-on versus buy-out debate will continue to be a hot topic and one which we will see evolve throughout 2025.
And finally…
It's clear that there will be a lot of political change in 2025, and, in the US, the policies of President-elect Donald Trump are predictably looking like they will be politically driven. It would be outwith our field of expertise to comment on the likely impact of this on investment markets but we will certainly be keeping a close eye on developments.
If you would like to discuss anything raised in this blog in more detail, please get in touch with a member of the pensions team or your usual Brodies contact.
