As we welcome in 2025 and look ahead at the year, the landscape for pensions is set to be dominated by significant changes coming from reviews and consultations.
Here are some of the key changes expected – but, as we all know, this could be just the start.
Inheritance tax
The challenges posed by the recent proposals to inheritance tax (IHT) and pensions are well known, and they are unlikely to dissipate with the first draft of the new legislation.
However, there is hope the forthcoming legislation will address some of the industry’s most pressing questions, allowing everyone to better prepare for the changes ahead.
Let’s hope the regulators will learn from the debacle surrounding the draft legislation for the abolition of the lifetime allowance (LTA) and press ahead more carefully with the IHT changes.
It is just disappointing that, once again, the knowledgeable voices in the sector weren’t consulted before such a significant decision was made.
In the meantime, clients and advisers will be exploring ways to mitigate IHT and adapt their estate and investment-planning strategies. This is particularly challenging for clients with established estate plans, as transitional protections similar to those for the LTA are unlikely. Good advice will be essential to minimise the impact.
The consultation process must yield more practical solutions than those currently proposed, avoiding inflated tax rates for some beneficiaries. The government is relying on individuals having up-to-date, accurate information about their entire estate, which is often not the case. Factors such as cost, opportunity and understanding can hinder people from optimising their estate planning.
Additionally, interest on late IHT payments will accrue and delays in paying pension death benefits under the new rules will add to the emotional strain on beneficiaries.
Advice guidance boundary
The Financial Conduct Authority’s ongoing review of the advice guidance boundary is set to continue, with new rules for better consumer support expected early this year. These changes will have significant implications for pensions and the advice sector.
DC pension rules
The FCA has also launched a major review of defined contribution (DC) pension rules (DP24/3) in response to the growing DC market.
This review covers DC transfers, consolidation and Sipps, aiming to ensure transfers are efficient and in the customer’s best interests, and that consumers can purchase Sipp products with confidence. We can expect more discussions around value for money and increasing trust in the pension system over the next 12 months.
Pensions dashboards
This year will also see pension dashboards make significant strides as large pension schemes, providers and all public-service schemes integrate into the dashboards ecosystem.
This year is pivotal for data preparation and ensuring compliance with the mandatory standards set by the Pensions Dashboards Programme. If the sector gets this right, it could be a game changer for pensions providing transparency and enabling engagement for savers, as they will, in time, be able to view all their pension details in one secure online location.
Pension Schemes Bill
The Pensions Schemes Bill is set to be introduced into parliament, focusing primarily on DC matters. This includes the introduction of a standardised value for money framework for trust-based arrangements.
Additionally, the bill is expected to address the automatic consolidation of deferred small DC pots, provide retirement solutions for DC scheme members and implement investment reforms from the first phase of the Pensions Review.
Pension mega funds
We are also expecting to see details on the merger of 86 council pension schemes into a few large mega funds to boost UK economic growth.
This initiative aims to unlock up to £80bn in investment, with larger funds better positioned to invest in infrastructure and high-growth areas, inspired by successful models in Canada and Australia.
This will represent a significant change to the UK pension market, aiming to improve financial security for retirees and transparency in investment management.
Overall, government faces a challenge in building trust in pensions, especially with sweeping changes like the new IHT treatment being announced without thorough consideration of practicalities.
While I remain cautiously optimistic the right outcomes can be achieved early in 2025, allowing time to address any challenges before implementation, the road ahead is undoubtedly complex.
Caitlin Southall is head of Ssas proposition at WBR Group
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