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Pensions Legal Outlook 2025

Key topics for you to prepare for in the next 12 months

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In our Pensions Legal Outlook, we predict the key issues for occupational pension scheme trustees and sponsoring employers in 2025.

Following the change of Government in 2024, there has been a small but noticeable shift in the direction of pensions policy, although many of the broad themes remain the same as last year. Consolidation, increasing investment in UK markets and improving pension outcomes top the Government agenda and will therefore be areas of focus for pension scheme trustees and employers as well. Other developments looming large next year include the new DB scheme funding regime, the coming of age of pensions dashboards and future inheritance tax changes.

Key themes

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1

De-risking

2024 was another busy year for de-risking transactions and, whilst not as busy as some predicted, it still shows a buoyant market for buy-ins and buy-outs. New entrants entered the market in 2024 with more expected in 2025. Meanwhile, the Government has confirmed that the Pension Schemes Bill, expected to be published next year, will include a legislative framework for the regulation of defined benefit (DB) “superfund” consolidation schemes. We expect this will lead to more trustees and employers giving serious consideration to superfunds as a long-term objective. 

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2

Scheme funding, surpluses and investment

The new scheme funding regime finally came into force on 6 April 2024 and applies to actuarial valuations with effective dates on or after 22 September 2024. The first tranche of schemes with valuations under the new regime will therefore need to get up to speed on the details in 2025. Meanwhile, improved funding positions mean that many trustees and employers are starting to think about how to deal with scheme surpluses, with running on the scheme potentially becoming a more attractive option. The previous government consulted on measures to make surplus extraction easier, but it remains to be seen whether this will be taken forward by the new government. On the investment front, ESG remains a hot topic for trustees, with the Labour manifesto promising that UK-regulated financial institutions (including pension funds) will be required to develop and implement credible transition plans that align with the 1.5°C goal of the Paris Agreement. We await an announcement on how and when such a requirement will be implemented.

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3

DC schemes

The Government is consulting on proposals for fundamental changes to the defined contribution (DC) pension scheme market. Most significantly, the Government is planning to legislate for a maximum number and minimum size of DC default funds for authorised master trusts and contract-based workplace pension schemes used for auto-enrolment. The aim is to accelerate a shift to fewer, larger funds in each arrangement and therefore the overall DC market. The Government is also considering imposing new duties on employers in relation to scheme selection and outcomes for members. Meanwhile, the Government has confirmed that several other reforms to DC schemes will be included in next year’s Pension Schemes Bill. These include a new value for money framework, a consolidation solution for individual deferred small pots and a requirement to offer retirement income solutions to members. There will be plenty for DC schemes to get to grips with in 2025. 

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4

Inheritance tax treatment of pensions

The Autumn Budget 2024 included the announcement that most unused pension funds and death benefits payable from a pension will be brought into a person’s estate for inheritance tax purposes from 6 April 2027. Currently, most lump sum death benefits are not chargeable to inheritance tax. The Government has published a technical consultation on the processes required to implement this change and has said it will carry out a further technical consultation on draft legislation in 2025. Trustees will become liable for reporting and paying any inheritance tax due on unused pension funds and death benefits, so it will be important to become familiar with the proposed new processes. Meanwhile, employers are likely to focus on the impact of the changes on benefit provision. 

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5

Pensions adequacy

The second phase of the Government’s pensions review is expected to consider further steps to improve pension outcomes, including assessing retirement adequacy. The exact scope of the review is yet to be confirmed, but it could include bringing forward regulations to implement already existing auto-enrolment legislation. This would reduce the lower age limit at which otherwise eligible workers must be automatically enrolled and re-enrolled into a pension scheme by their employers from 22 to 18, and remove the lower earnings limit from the qualifying earnings band so that contributions are calculated from the first pound earned. Reforms to auto-enrolment could be taken a step further, with increases to minimum employer contributions potentially under consideration. Employers and trustees should monitor developments in this area during 2025.

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6

Validity of amendments made to contracted-out schemes

The High Court and Court of Appeal decisions in the Virgin Media case confirmed that actuarial confirmation was required for amendments made by schemes contracted-out on a salary-related basis between 6 April 1997 and the abolition of contracting-out in 2016. Schemes have been considering the implications of this case for past amendments, and whether there is any action they need to take in response. We are aware of another case coming to Court early in 2025 which is expected to clarify certain related aspects, such as the type of amendments which required actuarial confirmation and whether subsequent actuarial confirmations that the scheme continued to satisfy the statutory standard have the effect of validating earlier changes. It also remains possible that the Government could legislate to regularise the position. Trustees and employers should continue to keep an eye on developments.

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Pensions Legal Outlook 2025



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