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2025: The year of pensions policy clarity?

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Despite the changing of the political guard in July 2024, there was remarkable continuity in DC pensions policy last year between the outgoing Conservative government and the incoming Labour administration. Indeed, Budget tax changes aside, pensions was arguably the dominant policy topic during the first six months of Sir Keir Starmer’s regime.

2024: Laying the groundwork

The great acceleration

However, those hoping for early policy clarity from the new government may have been left disappointed. While the flurry of publications and consultations has injected new energy into the policy debate, the activity largely amounted to laying the groundwork for 2025. By the end of the year many of the big policy questions – on contribution rates, mandated investments and consolidation – remained uncertain. 

What is certain is that, faced with an acute fiscal challenge, part of Rachel Reeves’ answer to the question of how to generate growth through private investment is to accelerate the process of DC scheme consolidation. Despite the introduction of the new Value for Money framework already being in train, and The Pensions Regulator stating explicitly in March that “we will help to drive consolidation in savers’ interests” the Chancellor has concluded that change is not happening quickly enough.

Consequently, in November, the Pensions Investment Review proposed measures both to limit the number of auto-enrolment defaults that an occupational DC scheme provider can offer, and to set a future minimum AUM threshold for defaults. The clear ambition is to move more rapidly to a smaller number of AE default providers. 

Have you got a mandate?

Perhaps the two biggest policy questions hanging over the industry as we enter the New Year are:

  1. Whether the Government will increase minimum contribution rate.
  2. Whether it will mandate investment in UK assets. 

On the first, the question will go unanswered for a while longer.  Having tapped up business for an additional £25 billion a year in employer National Insurance Contributions via the Autumn Budget, the Chancellor is loath to hit businesses a second time with higher pension contributions. As such, until there is a sustained return of both economic growth and business confidence, Rachel Reeves will be unlikely to broach the question

On the second, the Labour Manifesto was clear: “Labour will also act to increase investment from pension funds in UK markets”. However, recognising a range of concerns from the pensions industry about a formal mandate, the Government is taking further time to reflect on whether DC defaults should be mandated to make UK investments (and, if so, in which assets) before an announcement expected in the Spring. While accepting that concerns regarding fiduciary duty, member outcomes and potential unintended consequences are genuine, the Government believes it would have cross-party support if it chooses to opt for a formal mandate.

2025: The year of policy clarity?

We also expect policy clarity (if not absolute certainty!) on a range of other important issues through the course of 2025. In the Spring, we expect the FCA to set out the near-final rules for the Value for Money Framework and the timeline for its introduction, and for HM Treasury to publish the final regulations enabling multi-employer Collective DC schemes.

In the Summer, we expect the Pension Schemes Bill to be published. The legislation will cover measures previously agreed in policy terms, such as the provision of default decumulation products, as well as the consolidation of deferred small pots and any measures flowing from the final report of the first phase of the Pensions Investment Review (i.e. consolidation measures). Also in the Summer, we expect the FCA to consult on the detailed proposed rules to allow the provision of ‘targeted support’ to pension savers, and to set out a timeline for implementation.

Finally, in the Autumn, with the Chancellor likely to face difficult fiscal forecasts once more, we expect renewed speculation about where possible tax increases might hit, with pensions savings once more a possible target.

In summary, 2025 picks up were 2024 left off – it will be another year of change for DC pensions!

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