UK pensions in 2025: A year of preparation, pressure, and progress

2025 was a year of transition and preparation across the UK pensions landscape. From regulatory groundwork to milestones in digital transformation, pensions policy and market developments pointed toward long-term structural change more than headline-grabbing watershed moments. Yet the decisions and groundwork laid in 2025 will shape outcomes for schemes and their members for years to come.

In this latest instalment of an annual reflections series, Calculation Support Lead, Claire Hey looks back on another pivotal year for UK pensions. Building on perspectives shared in 2023 and 2024, the article draws on hands-on experience supporting schemes through complex calculations, regulatory change, and rising operational pressure. The focus this year shifts from anticipation to consequence, and what the industry now needs to carry forward into delivery.

A push to modernise pensions rules

At the heart of the year’s developments was the government’s continued drive to modernise pensions regulation. Much of this centred on the Pension Schemes Bill, which moved steadily through Parliament in 2025.

While the Bill itself may not have grabbed much public attention, its ambitions are significant. It aims to make pension schemes easier to run, better governed, and with greater focus on delivering value to members.

Among its key provisions are the long-awaited automatic consolidation of small pots to reduce fragmentation in the DC market and the introduction of a formal “value for money” test – whereby DC schemes will be expected to show not just that they are cost-effective, but that they deliver good member outcomes in terms of investment performance and service as well.

Automatic enrolment: holding steady, for now

Automatic enrolment remained largely unchanged in 2025. The earnings threshold and minimum contribution rates stayed the same, despite repeated calls for reform.

As wages rise, more people cross the earnings threshold and are automatically enrolled – and with the National Living Wage set to increase again in April 2026, an increasing number of part-time workers are poised to reach the minimum earnings threshold.

However, the key next steps to ensuring pensions adequacy in retirement - including a formal examination of contribution rates and extension of AE to younger workers - remain on the horizon rather than being delivered this year.

Pensions dashboards edge closer to reality

One of the most visible initiatives to reach major milestones this year was the Pensions Dashboards Programme.

By the end of 2025, over 60 million pension records - representing roughly 75 % of workplace and personal pensions in scope - plus the State Pension, had been connected to the dashboards ecosystem. Heywood reached a major milestone, connecting over 180 pension schemes (and 10 million members!) to dashboards through our ISP solution.

The MoneyHelper Pension Dashboard has undergone user testing, passing halfway through its first phase with broadly positive results, though challenges with data matching and user experience remain.

While a public launch date has yet to be confirmed, providers and trustees are firmly focused on the 31 October 2026 statutory deadline.

The Pensions Regulator also issued refreshed guidance this year, urging trustees to treat member data as a strategic asset and focus on cleansing both personal and benefit data in preparation for dashboard connectivity.

Cost-of-living pressures and public confidence

The Autumn Budget stirred significant debate over pension tax and workplace savings structures, as usual. In a move that seemed counter intuitive to encouraging saving for retirement, the government announced a future cap on tax-exempt pension contributions via salary sacrifice, with contributions above £2,000 attracting national insurance charges from 2029.

Against this backdrop, rising living costs and employer NIC increases added to the pressure on both businesses and households, reinforcing broader discussions about adequacy and fairness.

Additionally, inheritance tax quietly moved onto the pensions agenda, with the Budget confirming that from April 2027 unused pension pots will be counted as part of an individual’s estate for IHT purposes - ending pensions’ long-standing role as a tax-efficient way to pass on wealth and signaling a clear shift in how retirement savings are treated at death.

For many workers, pensions still feel distant and abstract, especially when day-to-day expenses are rising. This gap between long-term policy ambition and short-term public confidence remains one of the biggest challenges facing the system.

Public sector pensions and the LGPS: reform without the spotlight

While much of the pensions debate in 2025 focused on private-sector schemes, public sector pensions - particularly the Local Government Pension Scheme (LGPS) -continued to evolve largely out of the public eye.

The LGPS remained a central part of the government’s ambitions to unlock long-term investment capital. Throughout 2025, funds continued work to deepen collaboration through asset pooling, with ministers and regulators encouraging pools to become larger, more influential investors.

This push was not just about efficiency. Policymakers increasingly see the LGPS as a vehicle for investing in UK infrastructure, housing and green projects, while still meeting its primary duty to pay pensions. Balancing those goals - delivering strong, risk-adjusted returns while supporting wider economic growth - remained a live and sometimes controversial issue during the year.

In terms of future change to benefits for LGPS members, the government launched two major consultations on improving access, fairness, and protections within the scheme. Assuming that the majority of the proposals will come into fruition, members can expect to benefit from equalisation of survivor pensions, improvements to provisions for child-related leave to address the gender pensions gap, and greater pension protection when local authority services are outsourced.

Governance was also in focus. Many administering authorities continued to strengthen oversight arrangements, improve transparency around pooling decisions and invest in internal expertise. The year highlighted a growing expectation that LGPS funds operate like the major institutional investors - professional, strategic, and sophisticated.

A quiet but important year

2025 may not be remembered as a dramatic year for UK pensions, but it was an important one. It was a year of steady reform rather than sudden change, of groundwork rather than grand announcements.

For an overview of Heywood’s activities and accomplishments in 2025, watch our video with CEO Sian Jones.

As 2026 approaches, the success of pensions dashboards, the fate of automatic enrolment reform and the impact of consolidation will all come into sharper focus. For the LGPS in England, mayors and councillors will be able to join the scheme for the first time in over a decade. Whether these changes genuinely improve retirement outcomes for all is the question that now looms large.

For now, 2025 stands as a year in which the pension ecosystem quietly prepared itself for what comes next – and we are here for it. Gelukkig Nieuwjaar! In case you missed it: Heywood to be Acquired by Keylane!