The landscape for defined contribution (DC) pensions in the UK is set for a major change in 2025. New rules, government consultations, and reforms are all on the horizon. These changes could reshape workplace pensions for millions of people.
Philip Smith, DC Director at TPT, shares his perspective on what lies ahead for savers and schemes:
Focusing on Value for Savers
For a long time, pension schemes have tried to keep costs as low as possible. Now, regulators want to see more focus on value. This means schemes must show how they help members grow their savings, not just how little they charge.
“2025 could be the year where the focus finally begins to shift from cost to value for DC pensions, as TPR and FCA next year move forward with implementing the Value for Money framework for DC pensions.
A greater focus on member outcomes rather than simply the level of charges is badly needed and could help unlock increased investment budgets and greater diversification.”
This shift means pension providers will need to look beyond fees. They will need to show how their investment choices and services help members achieve better retirement outcomes.
Expanding Investment Choices
Pension schemes are being encouraged to invest in a wider range of assets, including private markets. Private markets include investments in companies, property, and infrastructure that are not available on the stock market. This can help boost returns for savers over time.
“This move to diversify has already begun, and TPT was one of the early pioneers in allocating to private markets. I expect this trend to gain pace during 2025 with an increase in private market solutions coming to the market, enabling schemes to allocate more efficiently. Ultimately, this should lead to superior risk-adjusted returns and higher pensions for members.”
By investing in private markets, pension funds can support UK businesses and infrastructure, while aiming for better growth for members’ savings.
Making Pension Choices Easier
Many people find it hard to understand their pension options. Deciding when and how to take money from a pension can be confusing. The Financial Conduct Authority (FCA) is working to improve this.
“The much-anticipated FCA Advice Guidance Boundary Review will also move forward with DC pensions as the first area of focus. With millions of consumers now relying on DC workplace pensions, helping them navigate complex retirement decisions is a key challenge for providers.
The proposals put forward by the FCA at the end of 2024 are an important step in getting better support to a large group of consumers who cannot access regulated advice.”
The FCA’s review aims to make it easier for people to get the help they need, even if they cannot afford full financial advice.
Meeting New Standards
With new rules coming in, pension schemes will have more to do. They will need to show how they deliver value, follow new guidelines, and report on their progress.
“Complying with new policy frameworks will increase the regulatory burden on schemes. However, the reforms are set to bring long-term benefits for pension savers and the wider industry, so schemes should be ready and willing to rise to the challenge.”
While these changes mean more work for pension providers, they are designed to deliver better results for savers in the future.
Improving the Retirement Market
Experts agree that the retirement market has not changed much since pension freedoms were introduced in 2015. Many believe more needs to be done to help people as they move from saving to spending their pension.
“At an event in October, we asked 48 advisers from employee benefit consultancies if they believed the retirement market had advanced since pension freedoms were introduced. A clear two-thirds majority (67%) felt that the market hasn’t moved on much. 2025 will be the year that this begins to change.”
The government plans to require schemes to offer a default way for members to take money out. This will help people who do not make an active choice about their pension.
TPT’s New Retirement Solution
TPT is preparing to launch a new pension product in 2025. This product is designed to make the retirement process easier for members.
“TPT is set to launch its new DC proposition in 2025 to simplify the process of retiring. The offering will make it easier for pension savers to transition from accumulation to decumulation by providing a straightforward pathway to receiving a sustainable income stream in retirement. The proposition is based on simplicity, low cost, and removing the need to make complex, advised decisions. It will form part of a digital solution with tools to make retirement choices clear and easier to understand.”
The new solution will help people move smoothly from saving for retirement to using their pension savings, with simple and affordable options.
Fixing Problems with Decumulation
The current system for taking money out of pensions—known as decumulation—is often seen as confusing.
“In our survey of employee benefits consultations, 94% had a negative view of the current decumulation market – describing it as confusing, complex and chaotic. The changes expected in 2025 should help to fix this problem by creating a more consolidated pension sector offering better value and more support for members.”
The reforms planned for 2025 aim to make this process clearer and give members more support.