Brits have been warned of a need to re-think planning for retirement amid seven major changes in pensions predicted over the next 12 months.
Seismic changes to the pension framework, particularly around inheritance tax, have arrived thick and fast in recent years.
Industry experts say we can expect further significant shifts in the coming 12 months.
The appointment of Torsten Bell as the new pensions minister, who has a record of recommending radical changes such as removing the triple lock protection for the state pension, is predicted to speed new thinking on saving for retirement.
Pensions expert from interactive investor, Craig Rickman, has unpacked the most important developments.
He said: “The year 2025 is shaping up to be pivotal for the retirement landscape, as the new government seeks to make headway towards its goal of improving later-life outcomes for savers.”
Pension dashboards
New pension dashboards, developed by the Money and Pensions Service, will enable savers to see all their pension savings securely in a single, online hub.
The timetable for plugging into the dashboard ecosystem is staggered by scheme size – the largest must connect by April 2025, filtering down to the smallest by September 2026.
Consumer may have to wait until 2027 to interact with the dashboard.
Mr Rickman said: “While pension dashboards are far from the silver bullet to help everyone knock their long-term savings into shape, they should represent a giant leap forward.
“Once they do go live, to get the most out of the dashboard it is essential for savers to engage with them.”
Inheritance tax on pension pots
Unspent pensions are to be brought into the scope of inheritance tax (IHT) from April 2027.
This means those set to inherit unspent pensions will face the tax which is levied at a flat rate of 40 percent.
Mr Rickman said constant changes in the tax rules around pensions risks causing lasting damage.
He said: “Reforms to pension tax have become so frequent, drastic and sometimes abrupt, that we have little idea what the rules will look down the line, making it hard to save for our golden years in confidence.
“One would hope the pension tax system gets left alone for the rest of the current parliament to bring some much-needed consistency.”
Seven big pension changes coming in 2025
Britons have been warned of a need to re-think planning for retirement amid seven major changes in pensions predicted over the next 12 months.
Seismic changes to the pension framework, particularly around inheritance tax, have arrived thick and fast in recent years.
Industry experts say we can expect further significant shifts in the coming 12 months.
The appointment of Torsten Bell as the new pensions minister, who has a record of recommending radical changes such as removing the triple lock protection for the state pension, is predicted to speed new thinking on saving for retirement.
Pensions expert from interactive investor, Craig Rickman, has unpacked the most important developments.
He said: “The year 2025 is shaping up to be pivotal for the retirement landscape, as the new government seeks to make headway towards its goal of improving later-life outcomes for savers.”
Pension dashboards
New pension dashboards, developed by the Money and Pensions Service, will enable savers to see all their pension savings securely in a single, online hub.
The timetable for plugging into the dashboard ecosystem is staggered by scheme size – the largest must connect by April 2025, filtering down to the smallest by September 2026.
Consumer may have to wait until 2027 to interact with the dashboard.
Mr Rickman said: “While pension dashboards are far from the silver bullet to help everyone knock their long-term savings into shape, they should represent a giant leap forward.
“Once they do go live, to get the most out of the dashboard it is essential for savers to engage with them.”
Inheritance tax on pension pots
Unspent pensions are to be brought into the scope of inheritance tax (IHT) from April 2027.
This means those set to inherit unspent pensions will face the tax which is levied at a flat rate of 40 percent.
Mr Rickman said constant changes in the tax rules around pensions risks causing lasting damage.
He said: “Reforms to pension tax have become so frequent, drastic and sometimes abrupt, that we have little idea what the rules will look down the line, making it hard to save for our golden years in confidence.
“One would hope the pension tax system gets left alone for the rest of the current parliament to bring some much-needed consistency.”
Clarity needed on pension IHT rules
People have a two-year window to decide how to change their retirement plans in response to the change to inheritance tax.
Mr Rickman said one concern is that there will be double taxation around these pension pots.
Some 40 percent will be charged on any sums in the nest egg and the recipient will also be charged income tax on anything they receive. The net effect is that as much of 67 percent of the pension pot could be grabbed by HMRC.
Mr Rickman said: “The government must clear up some key aspects of the proposed regime as soon as possible.
“There is also some confusion around which types of pensions will be subject to IHT and which won’t. These must be clearly defined and communicated well in advance of the implementation date.
“We’ve seen growing opposition to the possible double taxation scenario, where beneficiaries could pay both IHT and income tax, should death occur after age 75.
“Applying a single tax on death to avert an IHT reporting headache for estate executors and pension schemes and give savers a better idea about the potential tax implications of leftover pension savings on death makes far more sense in my view.”
Auto-enrolment contributions
The current contribution levels for workplace pensions will remain in place for the foreseeable future.
This means that if you pay 5 percent of qualifying earnings your employer must pay 3 percent.
Mr Rickman said a recent Labour’s decision to shelve its pension adequacy review means hopes that minimum contribution levels would be increased have been dashed.
He warned this means that, in many cases, the current pension contribution levels “are insufficient to achieve a comfortable retirement for millions of people”.
He added: “This places added onus on individuals to engage with their retirement savings in 2025.
“Rather than rely on the government, we must all take control of our own future.
“A good place to start is to find out the maximum your employer is willing to contribute to your pension, as not all companies stick to the minimums – some are more generous.
“You might have to match their percentage payment, but there is a strong incentive to do so as it’s effectively free money.”
WASPI debate to spill out into 2025
The government opted not to compensate WASPI women, despite the Ombudsman recommending redress of between £1,000 and £2,950
Mr Rickman said: “The government’s recent payout snub proved a further blow to the WASPI campaign, but the fight and debate will spill into 2025.
“Elsewhere, the state pension amount is set to rise a hearty 4.1 percent from April 2025.
“This means the full state pension will increase to £230.25 per week – £11,973 a year – while the basic amount will rise to £176.45 per week – £9,175 a year.
“This is welcome news for retirees, especially those out of pocket due to lost winter fuel payments.”
Retirement advice gap
The retail distribution review (RDR) is a piece of legislation introduced in 2013 that banned financial advisers receiving commission for pension and investment advice, and increased their professional standards
One consequence of this was the fact that now only roughly 10 percent of the population takes financial advice every year.
In December 2024, Financial Conduct Authority (FCA) launched a consultation to offer “targeted support” for UK savers, with further developments expected in 2025.
Mr Rickman said: “Most agree that the number of people taking financial advice is far too low. But solutions to bridge the advice gap have been in short supply, and previous efforts to plug the hole have made little ground.
“The FCA in late 2024 launched the latest idea to tackle the problem, allowing firms to provide “targeted support” for savers.
“A couple of examples here are when firms identify someone who is drawing down on their pension unsustainably, or someone unsure about how to take a retirement income. At first glance, it seems a halfway house between doing it yourself and regulated advice.”
He added: “We can expect to hear more about “targeted support”, and how it will help savers and investors, during 2025.”
Launch of defined contribution (DC) megafunds
New ‘megafunds’ are set to reform the defined contribution (DC) space in what the chancellor described as the “biggest set of reforms to the pensions market in decades”.
Mr Rickman said: “The idea is to consolidate defined contribution (DC) schemes and pool assets from local government pension scheme authorities to benefit from economies of scale and unlock tens of billions of pounds by funnelling pension scheme money into UK infrastructure and private equity. Ministers believe this will boost people’s retirement savings and drive economic growth.
“However, the idea already has its critics, with concerns that it’s for pension schemes to decide where to invest their members’ money, and the government shouldn’t get involved.
“To be clear, the government hasn’t said that allocating a certain amount of scheme money to the UK will be compulsory. Not yet anyway.”
