Major changes to pensions are due to come into effect from 2025, and they’re likely to affect you even if retirement isn’t something you’re thinking about right now. The state pension is set for a rise in April, but this could lead to some pensioners paying tax on their retirement funds for the first time.
There’s also an important deadline looming for checking whether you’ve made enough National Insurance contributions, or risk receiving a reduced state pension upon retirement. On a brighter note, the first companies will start linking to the pensions dashboard, potentially offering millions enhanced support for their retirement savings.
However, a review expected to bring about changes to auto-enrolment has been indefinitely delayed. State pension increase: The state pension is set to rise by 4.1% next April under the triple lock guarantee.
State pension increase
This ensures that the state pension increases each April by the highest of either inflation (based on the previous September’s figure), wage growth (average increase between May and July), or 2.5%. Wage growth will be used to determine the increase in the state pension.
This means the full new state pension will increase from £221.20 to £230.30 per week, while the full basic state pension will rise from £169.50 to £176.45 per week, according to the Mirror.
National Insurance deadline to boost state pension
A crucial deadline is fast approaching for those wishing to purchase missing National Insurance years. To be eligible for the full new state pension, most people need 35 qualifying years on their National Insurance record, and a minimum of ten years to receive any amount at all.
This means that if there are gaps in your record, you may not receive a full new state pension later in life. Currently, you can buy missing years dating back to 2006 – but after April 6 next year, you’ll only be able to go back six tax years.
First firms connect to pensions dashboard
The first pension providers will begin connecting to the long-awaited pensions dashboard from April 30 next year. All pension schemes must connect by October 31, 2026 at the latest.
The pensions dashboard will allow individuals to view all their pensions in one place through the Money and Pensions Service – this means you’re less likely to lose track of smaller retirement pots.
Millions could get more support with their pensions
The Financial Conduct Authority (FCA) has proposed new measures that could see financial firms offering free bespoke advice to pension savers. The idea is that savers would receive more help to boost their retirement savings.
Currently, a fee is required for tailored advice. The FCA is seeking opinions on its proposals by mid-February 2025 and plans to consult in summer 2025 on the rules that would establish a new framework.
New ‘modernised’ pension scheme could be rolled out
A new ‘modernised’ pension scheme, known as Collective Defined Contribution (CDC), could soon be rolled out more widely. CDC pension schemes, which pool employer and member contributions into a collective fund for investment, offer an alternative to traditional defined benefit (DB) and defined contribution (DC) workplace schemes.
Royal Mail was the first company to launch such a scheme this year, and the Government has initiated a consultation on how its wider implementation could affect pension savers. Legislation is planned for introduction in 2025.
Potential changes to pension auto-enrolment
Meanwhile, the future of proposed changes to pension auto-enrolment rules remains uncertain. Pension auto-enrolment automatically enrolls you into your employer’s workplace pension unless you opt out.
Currently, you are auto-enrolled when you reach the age of 22 and earn over £10,000. This age threshold is set to be lowered to 18, encouraging workers to start saving for retirement at a younger age.
The lower earnings limit – the minimum level of earnings on which you and your employer must pay contributions – is also set to be abolished. The limit currently stands at £6,240.
However, it has been confirmed that a significant review into pensions adequacy has now been indefinitely postponed. The Government had previously stated these changes would be implemented by the mid-2020s.
