As 2025 kicks off, we reflect on where we have got to with various pensions initiatives and reforms

2024 was not a quiet year for pensions. Far from it! 

Much of the activity has of course arisen from a change of guard in Government – for example the commencement of the two-pronged wide-ranging Pensions Review and the announcement of the Pension Schemes Bill (to come this year and to cover a variety of pensions topics). 

But there have been a whole host of other pension initiatives that were in progress pre-General Election last year. We looked at many of them in an article we published back in May 2024 as part of our pre-Election crystal ball gazing. What of all those other initiatives, some of them extremely important for the industry and some with cross-party consensus on moving forward? Which of them have progressed and which have stalled, perhaps indefinitely? 

Some of course were picked up in the recent November 2024 Mansion House speech and in the interim report on Phase 1 of the Government’s Pensions Review (the “Pensions Review”) which was published alongside the speech, but those changes in the main focussed on DC and LGPS consolidation. It was hoped that some of the initiatives would be picked up in Phase 2 of the Pensions Review, but we heard just before Christmas that the Chancellor has put it on hold, perhaps indefinitely.

As we start 2025, we take a look below at where we are now on the various pensions initiatives and reforms, and look ahead to what might come in 2025. 

General progress in relation to ongoing initiatives

As mentioned, there were numerous pension initiatives and developments that were in progress when the snap General Election was called. We certainly saw some come to fruition in 2024 – and not before time in some cases (the DB Funding Code anyone?! It only came into force in the middle of November 2024 after several years in the making). 

The Pensions Regulator’s (“TPR”) General Code was with us for most of 2024 and pension schemes should now have preparations well underway for completion of their first Own Risk Assessment, the deadline for which will fall some time in 2026 for most pension schemes. 

Pensions dashboards have of course been on everyone’s lips as well, with the industry gearing up towards dashboard connection for the largest pension schemes from the end of April this year. The Pensions Dashboard Programme has been key in progressing the industry’s readiness for pensions dashboards and was very busy in 2024 producing documents, including a set of standards and a Code of Connection (both updated frequently) and other helpful dashboards connection material. TPR also updated its guidance in December 2024 and has a useful checklist.

And, as mentioned above, we now have the full DB Funding regime, following the publication of TPR’s covenant guidance at the end of 2024. Trustees now have all the required (and long-awaited) ammunition to commence their pension scheme valuations with effective dates on or after 22 September 2024 under the new regime. That is not to say it will be an easy process, with all the new requirements to consider and meet under the Funding and Investment Strategy Regulations 2024 (“Statement of Strategy” anyone?) and covenant assessments likely still required for even the better-funded “Fast Track” DB schemes.

Current position in relation to specific ongoing pension initiatives and reforms

In terms of other initiatives that we looked at back in May 2024, our table is set out below, with a few additions. Those that been progressed or decided are shown in bold. Those that have been addressed by the Government, or in respect of which the Government has made commitments but is still to substantively progress, are shown in italics. And everything else remains stagnant, with no indication of when they might be progressed, if at all (e.g. the updated notifiable events regime).

Picking out a few of the “hotter topics” from the table above:-

• Investment in productive finance infrastructure –looking at ways to encourage this was a key objective of Phase 1 of the Pensions Review. Whilst in the end the Government did not, as was hotly anticipated prior to publication of its Phase 1 interim report, mandate minimum levels of investment in UK equities and / or infrastructure, it had said it may be revisited as part of Phase 2 of the Pensions Review. However, as mentioned above, it has now been reported that Phase 2 has been stalled by the Chancellor, perhaps indefinitely. 
   
• Professional trusteeship – TPR has announced in the last few months that it plans to extend its regulatory approach to professional trustee firms and intends to establish new relationships with the 10 largest professional trustee firms before Christmas. TPR also confirmed that the growing role of sole trustees will also be considered as part of this work, in acknowledgement of the fact that it is another area of the pensions market that has seen “huge growth” in recent years.
   
• Surplus extraction/run-on – this is one of the biggest topics that was very much hoped within the industry would be covered in the Chancellor’s November 2024 Mansion House speech. But to the surprise of the industry (given the untapped potential for using DB scheme surpluses at least partly to fuel the Government’s ambitious UK investment objectives) it was not mentioned. Whilst there have been subsequent murmurings of an imminent DWP follow-up to the previous Options for DB schemes consultation pre-election, it has yet to transpire. We might not hold our breath on this one…
   
• Section 37 actuarial confirmations – Following the Virgin Media High Court and Court of Appeal rulings, this understandably continues to be a significant issue for DB schemes that were contracted out on a reference scheme test basis. The DWP and the Government are currently considering the evidence that has been presented to them by the pensions industry which seeks to persuade the Government to use its existing legislative powers to “fix” the issue and save a lot of headaches in the process. Again, we are still awaiting an update on the outcome of those Government deliberations (the three pension industry bodies taking it forward issued an update prior to the Christmas break, noting that they were continuing to work with the DWP and push for a regulatory fix). In the meantime, DB schemes are grappling with missing s37 confirmations and taking advice on the best course of action to address the issue for their pension scheme (which in many cases will depend on their particular circumstances, i.e. if the scheme is in buy-in / buyout, heading to wind up etc).
   
• Small pots – as we’ve reported previously, the forthcoming Pension Schemes Bill will include measures to prevent “people from losing track of their pension pots through the consolidation of Defined Contribution individual deferred small pension pots”.  This will happen “automatically” to “maximise income in retirement and deliver value for every saver” as well as benefitting schemes by reducing the number of loss-making small pots they have to manage. 
  
  We are aware that the Small Pots Working Group had been meeting regularly over the course of 2024, and had made progress, but we are yet to hear what the proposals are for taking this forward. In the meantime, there were a number of innovative solutions put forward within the industry (e.g. LCP’s magnetic pension proposal) in 2024 to address small pots, which are worthy of consideration by the Working Group. 
   
• Pots for life – this seems to have fallen off the pensions agenda and looks doubtful as to whether it will be revived. 
   
• Alternatives to buy-out – This has been progressed in a few significant areas.

In July 2024, TPR issued its DB superfunds guidance for those setting and running a “DB superfund”. This represented a key development for the infant superfund market and capital backed arrangements (CBAs) which provide new run-on options for pension schemes and their sponsors.  Key points to note from the guidance included: allowing a superfund to distribute returns to its investors (within certain parameters being met); relaxing the capital requirement for capital backed providers looking to take on pension schemes from the Pension Protection Fund; and clarification from TPR as to how superfund guidance should apply to CBAs.

So important progress in some areas in 2024 but, as mentioned above, much of the industry’s focus remains on progressing options to unlock trapped surplus in order to allow schemes and sponsors to fully consider alternatives to buyout.

• Collective defined contribution – some groundbreaking progress was also made in 2024 in relation to the future of Collective Defined Contribution schemes. First up was the commencement of the first CDC scheme established by the Royal Mail, signifying an important milestone for CDC being treated as a serious contender in the pensions market. That was swiftly followed by a DWP consultation on extending the CDC legislation to unconnected multiple employer schemes, which ended in November 2024. 
   
• Extension of pensions auto-enrolment – whilst this has not yet been picked up by the Government, the industry was hopeful that it would be taken forward this year as part of Phase 2 of the Pensions Review, which was to focus on pensions adequacy and decumulation. It seems a no-brainer, auto-enrolment as an initiative has been hugely successful, but now needs to go further to address pensions inadequacy. And that is something on which all political parties agree which is half the battle in itself! 
  
  However, as mentioned above Phase 2 of the Pension Review is not progressing (potentially for some time) with the Chancellor apparently concerned about further increasing the financial burden on businesses following her Autumn Budget, which is perhaps not surprising with employers already processing the increase in employer national insurance contributions. Time will tell whether the industry’s demands for extension of pension auto-enrolment to tackle pensions adequacy is progressed at all in 2025, but it is much more uncertain now given the apparent halt to Phase 2 of the Pensions Review. 
   
• Consolidation of small schemes/Value for money/Broadening investment options – These can all said to have been captured by the DC and LGPS consolidation proposals coming out of the November 2024 Mansion House speech. Ultimately what was proposed by the Government reforms announced had all of these objectives at their heart.

On Value for Money, as reported previously, that will be picked up in the Pension Schemes Bill due later this year and the framework on which the FCA consulted late in 2024 will, in due course, be rolled out to trust-based workplace pension schemes as well. 

• LGPS pooling and investment – this was obviously one of the two main changes coming out of the 2024 Mansion House speech. And with a specific LGPS reform consultation underway and very tight timescales for LGPS funds to respond to the proposals (by 1 March), this year is going to be a very, very busy year for the LGPS!
   
• Fiduciary duties –the topic of fiduciary duties garnered fevered attention in 2024 too, both before, but especially after, the General Election and announcement of the Pensions Review and in the run-up to the Chancellor’s Mansion House speech. It is an area that many within the pensions industry feel needs revisited, with many calling for legislative clarification and/or overhauling. We wrote an article on the calls for reform a few weeks before Christmas. There was no mention of the concept of fiduciary duties in the interim report of Phase 1 of the Pensions Review and, as yet, there has been no indication from the Government that it will pick up where the Conservative Government left off looking into this topic prior to the General Election. 
   
• IHT changes for pensions - and finally, the Chancellor announced in the October 2024 budget that from April 2027 many pension death benefits will be brought within the scope of the inheritance tax regime for the first time. A technical consultation is underway and there will be a lot of changes required on an administrative level and retirement planning and employee  benefit reviews are likely to be affected. Further clarity is awaited on the intended policy for life cover under registered pension schemes.

So it is clear from the above that there are a number of initiatives that have been progressed during 2024, with plenty more to come this year. Last year certainly felt quite a frenetic, albeit exciting, year for those of us working within the pensions industry! But there is still much to be done and hopefully some key pension initiatives highlighted above still to be progressed, some of which will be really important in tackling pensions adequacy and retirement solutions (e.g. expanding auto-enrolment and addressing decumulation solutions). However, some initiatives are still looking on a shaky peg for progression, particularly given the delay to Phase 2 of the Pensions Review.

As we begin our journey into 2025, the pensions industry can expect a whirlwind of progress alongside existing busy projects, building on the rollercoaster ride of 2024. Buckle up for an exciting year ahead!

If you would like to discuss any of the above, please contact your usual Burges Salmon pensions partner or Alice Honeywill. 

This article is current as of 6 January 2024 and was co-written by Mairi Carlin and Alice Honeywill, with thanks to Louise Pettit for her input.