The year 2025 is shaping up to be very important for defined contribution (DC) pensions in the UK. Many changes are expected. These include new rules, consultations, and reforms. Together, they could change how workplace pensions work for millions of people. Philip Smith, DC Director at TPT, shares his thoughts on what will happen next.
Moving from Cost to Value
For many years, pension schemes focused on keeping costs low. But now, regulators want schemes to focus more on value. This means ensuring that members achieve good results for the money they pay.
“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.”
What does this mean? Instead of just looking at fees, pension schemes will need to show how well they help members grow their savings. This could involve investing in various types of assets or enhancing the management of the pension.
Investing in Private Markets
One way pension schemes can add value is by investing in private markets. These include businesses, property, and infrastructure projects that are not traded on the stock market.
“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.”
Private markets can offer better returns over time. They also help support the UK economy by funding new businesses and infrastructure. This benefits pension savers and the country as a whole.
Helping People Make Better Decisions
Many people find it hard to understand their pension options. Choosing how and when to take money from a pension can be confusing. “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 is working on ways to give better advice and guidance. This will help more people make good choices without needing expensive financial advice. New Rules Bring Challenges and Benefits. New rules mean pension schemes will need to do more work. They will have to follow new guidelines and report on how they deliver value.
“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.”
Although this means more effort for pension providers, it should lead to better outcomes for savers in the long run.
The Retirement Market Needs to Evolve
Many experts believe the retirement market has not changed enough since pension freedoms were introduced in 2015.
“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 pension 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 Pension Offering
TPT is launching a new pension product in 2025 to make retirement easier.
“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.”
This product will help people move smoothly from saving money to spending it in retirement. It will be easy to use and affordable.
Current Problems with Decumulation
“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 in 2025 aim to make this process clearer and more supportive for pension savers.
Why 2025 is Important for You
If you are saving into a DC pension, 2025 could bring many changes that affect how your money is managed and how you take it out in retirement. The focus will be on helping you get better value, clearer choices, and stronger support. The pension industry is working hard to make these changes happen. This means better pensions and a more secure retirement for millions of people across the UK.