Financial services consultancy Broadstone has outlined its key predictions for the pension market in 2025, focusing on potential developments, government reviews, and areas requiring reform.

David Brooks, Head of Policy at Broadstone, shared insights on the future of pension adequacy, state pension considerations, tax relief, scams, and death benefits.

The coming year is expected to centre on the government’s pension review, which aims to evaluate whether existing systems meet the needs of the majority. Discussions will likely include the adequacy of contributions, the impact of auto-enrolment, and potential enhancements such as short-term savings vehicles to complement pension savings. Meanwhile, the triple lock commitment on state pensions is set to remain until the next election, though questions around sustainability and the state pension age will persist.

Scams in the pension sector are another concern, with calls for stricter regulations and improved vetting processes for new schemes. Speculation about pension tax relief reforms continues, particularly the potential shift to a flat-rate system, which could benefit basic-rate taxpayers.

Pension Adequacy Under Scrutiny

In 2025, the government is expected to initiate the second phase of its pension review, focusing on whether current systems adequately support the long-term financial needs of the public. Broadstone suggests the review should prioritise:

  • Simplicity in understanding and accessing pensions.
  • Cost efficiency and value tailored to member needs.
  • Strengthening the collaboration between employers and employees.

Defined Contribution (DC) schemes, now the dominant private sector pension model, will remain a central focus. The government will likely explore whether contributions are sufficient and assess the effectiveness of auto-enrolment. Additionally, side-car savings vehicles, which allow individuals to save for short-term needs alongside pensions, may be considered.

The Work and Pensions Committee’s investigation into pensioner poverty could also influence reforms aimed at ensuring retirement systems reduce financial hardships for older populations.

State Pension Stability and Age Review

The triple lock system for state pensions is anticipated to stay in place until the current parliamentary term ends, providing stability for retirees. However, a review of the state pension age looms, with the Government Actuary’s Department and independent bodies set to advise on changes.

The current plan to increase the state pension age to 68 by 2044-2046 may face revisions, with proposals to bring this forward to 2037-2039. Any adjustments would require a minimum ten-year notice period, to allow affected individuals to prepare adequately.

Pension Tax Relief Reform Remains a Possibility

Reforming pension tax relief is likely to remain a topic of debate. Broadstone highlights the potential introduction of a flat-rate tax relief system, which could make pensions more rewarding for basic-rate taxpayers. While such a move could address equity issues, complexities would arise for high-income earners and those in Defined Benefit (DB) schemes.

Healthcare professionals, including NHS staff, could be particularly impacted, raising concerns about retention in critical public services at a time when waiting lists are at record highs. These challenges could make sweeping reforms politically sensitive.

Combating Scams

Pension scams continue to threaten savers, and Broadstone suggests several measures to address this growing issue. These include:

  • Accelerating the implementation of rules for DB transfer schemes.
  • Introducing a Pension Scheme Tax Reference system, with thorough vetting for all new applications.
  • Improving information sharing to monitor existing schemes.
  • Reviewing penalties for victims of unauthorised payments, which currently treat individuals as at fault despite their losses.

Greater regulatory oversight could help protect savers from complex scam structures designed to lock them out of their funds.

Calls to Exclude Death Benefits from Inheritance Tax

Broadstone also recommends the government reconsider its approach to inheritance tax (IHT) reforms, particularly regarding pension death benefits. David Brooks argues that including death benefits from Defined Benefit (DB) schemes and Death in Service (DIS) provisions in IHT calculations would be unjust.

These benefits are not intended for wealth accumulation but rather to provide financial security for families in the event of a breadwinner’s death. Including them in IHT reforms could disproportionately impact individuals who rely on these funds to replace lost income.

With a busy year ahead for pension policy, reforms to pension adequacy, state pension age, tax relief, and scam prevention could have far-reaching implications for employees and organisations alike.