Improvements in defined benefit (DB) pension scheme funding mean that, for many, the ‘endgame’ for the pension scheme now feels tangible, instead of a distant ambition. However, the advent of the new funding regime will overlay a new discipline. With defined contribution (DC) schemes, questions around adequacy remain uppermost for members, while the absence of a timetable for the extension of auto-enrolment minimum contributions continues to be a concern.”

The challenge of retirement adequacy
We now know that Employer National Insurance Contributions and minimum wage changes in April 2025 will increase the cost of employing staff. One casualty of that could be employer pension contributions above the auto-enrolment minimum, meaning less saved into pensions. And yet we know that DC savers are already generally not saving enough for adequate retirements, meaning that there is a real risk of retirement adequacy declining. There may be solutions on the horizon, but while multi-employer CDC schemes – which have the potential to deliver better average member outcomes – have taken a big step forward in 2024, their widespread implementation remains in the future.”

Pensions industry capacity
Dashboard readiness, GMP equalisation and the continued growth of the market for bulk annuity transactions are among many factors continuing to fuel the pensions industry’s capacity crunch. These activities need experienced pension professionals across all disciplines. But sadly, there is no sign of this changing soon, meaning that some activities will inevitably take longer than hoped. Prioritisation will be key to keeping projects and progress on track.”

Dashboard connections
The deadline for connection is October 2026 but next year may be make-or-break for dashboards. If the big schemes can’t make their Pensions Regulator-suggested 2025 connection dates, it would probably send the signal that all schemes will struggle to connect on time. The pensions dashboards concept probably has a single opportunity to become embedded in the public consciousness as a success – so any missteps along the way could seriously impede the effectiveness of dashboards for the long-term.”

Supporting members
One inevitability of 2025 and the years to follow is that we will see an increasing number of adults retiring with predominantly DC savings. These retirees will face complex decisions about when to retire, in what form to take benefits and from which provider. This is not a new issue but with interest rates remaining high and adequacy a concern, the complexity of the challenge has never been as great. Additionally, although dashboards will provide some information on pensions, it will not be enough to make informed decisions. My hope is that schemes and providers will step in to support members in understanding their choices and help them transition to retirement. Without this there is a risk of a forgotten generation who retire before action is taken and suffer inferior retirement outcomes.”

Investing in the UK
The government remains intent on pension schemes investing further in the UK and yet the hopes of many schemes that new incentives for this would be mentioned in the Budget or the Mansion House speech were dashed. This leaves an uneasy void which I hope will be filled as we enter 2025. Potential actions could include an element of risk sharing with the government or insurance against losses in relation to certain UK investments. Shifting the focus from cost to value and exploring alternative fee structures for DC schemes could also help.”

More DB endgame options
Although some DB schemes have regularly re-evaluated their endgame target, 2025 will see a third of schemes with actuarial valuations formally reconsidering and documenting their long-term goal. And now they have more options – whether to buyout, join a Superfund, insure via a captive or run-on. No doubt, formally or informally, buyout will remain the goal of the majority, but now that the remaining funding gap has closed significantly, there are schemes questioning whether they will buy out at the first opportunity. We await the outcome of the February 2024 consultation into DB surplus refunds ahead of wind-up, as this could change the balance of thinking for some on this decision.”

NTL Pension Trustees vs Virgin Media case
My abiding hope for 2025 is that this issue is resolved for all pension schemes, whether through the Courts or via Department for Work and Pensions action – and without schemes having to undertake significant searches themselves. As it stands, and even though they have no reason to question scheme benefits, most DB pension schemes will feel that the Sword of Damocles is hanging over them – and auditors are becoming increasingly insistent that investigations are conducted.”

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