Outlook for Defined Contribution (DC) pensions in 2025

“2025 is set to be a very busy year for defined contribution pensions. Schemes will have to navigate a wave of consultations and reforms over the next 12 months that could transform the future of workplace pensions. The most significant reforms are likely to come from the Government’s Pensions Investment Review. While the second phase of the Review is rumoured to be on hold, the first phase may force more consolidation in the industry and drive investment in UK productive assets. A more consolidated DC market with larger schemes and providers presents potential advantages and risks for UK pension savers and economic growth. While economies of scale can improve investment opportunities and enhance governance, concentration risk, reduced innovation, and systemic risks must also be carefully considered. Any policy proposals from the Review will form the backbone of the planned Pensions Bill, which will likely be introduced to Parliament this summer.

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 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.

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.

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.

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 DWP has previously confirmed that it plans to introduce new rules requiring DC schemes to provide a default decumulation solution for members who fail to make an active decision about their pension savings. Some innovative schemes will offer these improvements ahead of the new rules. 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.

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.”