What's on the agenda for UK pension trustees in 2025?

It is set to be another busy year for pension scheme trustees. Here are ten developments that trustees will need to keep on their agenda in 2025: the first four are relevant for trustees of defined benefit (DB) schemes and sections and the subsequent six both for them and for trustees of defined contribution (DC) schemes and sections.

 Scheme funding (DB only)

Trustees will need to ensure that any valuation with an effective date on or after 22 September 2024 meets the new funding requirements introduced by the Pension Schemes Act 2021, the Occupational Pension Schemes (Funding and Investment Strategy and Amendment) Regulations 2024 and the Pensions Regulator's new DB funding code.

Among other things, trustees will need to consider whether it is possible and or appropriate to follow the fast-track funding parameters (or whether they need to submit a bespoke valuation), set a low dependency funding objective and prepare a statement of strategy.

Trustees should be aware that a number of additional requirements are now set out in legislation. For example, the 2024 regulations say what is meant by "strength of the employer covenant" and how it should be assessed. This feeds into the new DB funding code and into the Pensions Regulator's new, and significantly updated guidance on assessing the employer covenant. In view of this, trustees should consider asking for joint training from the scheme actuary and their legal adviser.

Risk settlement (DB only)

2024 was another incredibly active year for buy-in and buy-out transactions. December also brought the news that the UK's first DB superfund Clara-Pensions had reached agreement on its third transaction.

Trustees who have already agreed an endgame option with the employer will want to continue to work towards this. For other schemes, the first valuation under the new DB scheme funding rules is likely to start a discussion. For employers, ultimate objectives for a DB scheme (for example, to buy in and buy out) may have company accounting impacts that need to be checked and taken into account. Legal advisers can outline the main options and considerations attaching to each.

The draft Pension Schemes Bill, expected this summer, should include the long-awaited legislative framework for DB superfunds (at the moment, they are subject to a governance framework established by the Pensions Regulator). With other risk-settlement solutions emerging, the Pensions Regulator has said that it is going to publish guidance for trustees and employers who are considering a DB superfund, DB master trust or capital-backed journey plan.

To provide clarity for schemes considering run-on, it is hoped that the government will confirm whether and to what extent it intends to proceed with the previous government's proposals to change the rules around use of surplus in an ongoing scheme.

It is hoped too that the government will confirm this year whether it intends to proceed with the previous government's proposals to establish a new DB consolidator scheme administered by the Pension Protection Fund.

Increase of pre-April 1997 pension (DB only)

Trustees should consider reviewing the provisions in their scheme's trust deed and rules relating to the increase of pension earned before April 1997.

There is no general legal requirement to increase pension earned before 6 April 1997 once it has come into payment. As a result some pensioners, particularly those who earned all or a significant part of their pension before April 1997, are dependent on discretionary increases to ensure their pension payments keep up with inflation and have been particularly hard hit by the recent (and continued) increases in the cost of living.

In November 2024, the chair of the Work and Pensions Committee wrote to the secretary of state for work and pensions to ask for a response on the recommendation made in the committee's March 2024 report on DB pension schemes. The report recommended that the Pensions Regulator should "undertake research to find out: how many schemes have provision for discretionary increases on pre-1997 benefits within their rules; whether the discretion is for the trustee, sponsoring employer or both; the number of years in which they have paid discretionary increases on pre-1997 rights; and in the years they have not done so, the reasons for this".

Action groups are lobbying for the government to take action in this area and reports suggest that the government will respond in the coming months.

Legal advisers can help review relevant provisions in trust deeds and rules. Questions to consider include, are there any discretions to award an increase or a higher level of increase? If so, are any requirements in the relevant rules (for example, for annual consideration of whether an increase should be granted) being followed? And should pension increase or augmentation powers be used to award an increase or additional increase this year (especially if the scheme is fully funded or in surplus) in view of the special position of these members? Pre-1997 pensioners are also one category of members to consider if a scheme is securing benefits through buy-in and buy-out.

Developments following the Virgin Media decision (DB only)

There have been reports that at least one more case raising questions related to the Court of Appeal's decision in the Virgin Media case is due to go to court this year.

It is hoped that the Department for Work and Pensions will confirm, in the coming months, whether it plans to use its power to make regulations to retrospectively validate amendments made in the past to schemes that were contracted out on the "reference scheme" basis, or to intervene in some other way. 

Pensions dashboards (DB and DC)

The dates by which most private sector occupational pension schemes need to connect to the dashboards ecosystem fall between April 2025 and September 2026. Although they will be relying on others to meet their dashboard duties, the trustees are ultimately responsible for compliance with their "connect by" date.

The Pensions Regulator has published and updated pensions dashboard guidance, including a preparation checklist. Trustees need to ensure that their dashboard connection project plan is complete and running to time, the necessary records are being kept and their connection is scheduled into the workflows of all relevant parties. They also need to put in place (or update existing) agreements with all of the parties involved in dashboard connection (including the scheme administrators). Legal review of these agreements (and of documents such as privacy notices) is recommended.

ESOG review and ORA (DB and DC)

Trustees will need to continue their work to ensure that they have an effective system of governance (ESOG), including internal controls, and are meeting the requirement to review each element of the ESOG at least every three years. The trustees of schemes with 100 members or more might complete this review as part of their first own-risk assessment (ORA) but will need to make sure that they complete the review and assessment within 12 months beginning with the last day of the first scheme year that begins after 28 March 2024. For some schemes, this date will not be as far away as it sounds and 2025 will be a critical year for ESOG reviews and ORAs.

Osborne Clarke has  prepared a series of policies, including an ESOG review and ORA policy, which trustees might find helpful.

ESG (DB and DC)

Last summer, the Pensions Regulator published the results of its review of whether trustees are complying with their environmental, social and governance (ESG) duties, including in respect of climate change, in the particular context of disclosures made in their statements of investment principles and implementation statements. One of the main findings was that, while the majority of trustees are meeting their ESG-related disclosure requirements, many are only delivering minimum compliance.

The Pensions Regulator made a number of recommendations, including for the trustees of schemes invested in pooled funds. It has since launched an ESG resource for trustees, called for more than minimum compliance and confirmed that it will continue to focus on this area.

As levels of awareness rise and the risk of member challenge increases, Trustees should make sure that they understand the legal requirements and their duties in this area and consider what further action they can take.

Pensions review and Pension Schemes Bill (DB and DC) 

The government is expected to release the final report on phase one of its pensions review in the spring.

Phase one of the review is focussed on the Local Government Pension Scheme (LGPS) and on  "driving scale and consolidation" in DC schemes, achieving "a greater focus on value" rather than cost, and encouraging "further pension investment into UK assets to boost growth across the country."

The government released its interim report on phase one, together with consultations on proposed reforms to DC pensions and to the LGPS, in November 2024.

For DC schemes, the government consulted on proposals to limit the number of and set a minimum size for automatic enrolment default funds or arrangements operated by DC master trust or group contract-based scheme providers. The consultation paper acknowledges that this change could reduce the number of DC master trust and group personal pension providers, as those who cannot reach scale are forced to consolidate with others. The chancellor in her Mansion House speech in November detailed these and other reforms to "prime" pensions to boost UK growth.

The final report on phase one should confirm which of these changes the government intends to proceed with. Any primary legislation needed to introduce them will then be included in the draft Pension Schemes Bill, expected in the summer.

For DC schemes the Pension Schemes Bill is also likely to include draft legislation to introduce new value-for-money requirements for default arrangements in trust-based schemes similar to those consulted on by the FCA for contract-based schemes (giving default arrangements a red, amber or green value-for-money rating, with a requirement that specific action to be taken where the rating is red or amber), a new trustee duty to offer a retirement income solution or range of solutions (including default investment options) to members and the long promised automatic-consolidator fund solution to address the large number of small deferred DC pots that have built up since the introduction of automatic enrolment.

For DB schemes, the bill should contain the legislative framework for commercial DB superfunds and remove the need to take a Pensions Ombudsman decision to the county court before starting recovery where a member disputes the recovery of past overpayments through recoupment (deduction from future pension payments). There is speculation it might also change the law to make it possible for the Pension Protection Fund (PPF) to reduce the PPF levy to zero (or a much lower level) without being prevented from restarting the levy or materially increasing it, if needed.

Stage two of the government's pensions review (which is expected to focus on retirement adequacy and to include a review of the scope and minimum contributions for automatic enrolment) has been delayed.

Draft legislation on inheritance tax, death benefits and pensions (DB and DC)

HMRC has said that the draft legislation for the planned change to include death benefits and any "unused" DC funds in a member's estate for inheritance tax purposes from April 2027 will be published this year. At the moment, the impact on DC and DB schemes is reasonably clear, but there are some questions, including on whether insured lump sum death benefits paid from DB or death-in-service only schemes will be caught by the change. Once the draft legislation has been released, it should be clear which benefits are affected and so which schemes need to prepare for the change. There will then be a series of actions for trustees to take.

Economic Crime and Corporate Transparency Act 2023 ((DB and DC)

Trustee companies, including independent professional trustee companies, need to ensure they are meeting the Economic Crime and Corporate Transparency Act (ECCTA) requirements that already apply and are preparing for changes (for example, around identity verification and filings) that are on the way. Companies House has provided  an indicative timetable for upcoming changes and the Home Office has published guidance around the new offence of failure to prevent fraud that will apply to large organisations from 1 September 2025.

Osborne Clarke comment

The changes proposed in the government's November 2024 DC consultation could have a significant impact on the DC master trust and contract-based DC market. Trustees who are in the process of considering a proposal to close a DB section to future accrual with active members being invited to join a DC master trust or contract-based personal pension or who are considering a bulk transfer of existing DC members to a DC master trust should ask their advisers about the potential impact on providers of the November consultation.

The government's plans to introduce (for all trust-based pension schemes) new value-for-money requirements for DC default arrangements and a new duty to offer retirement solutions to members also signal major change for DC trustees. The timings for the Pension Schemes Bill are not clear and trustees should follow developments and consider asking for advice on how the changes might affect them and what they can do to prepare.

In the year ahead, we expect the government to prioritise the workflows from its pensions review, the Pensions Schemes Bill, and regulations to change the law to allow the establishment of master trust collective money purchase (also known as collective defined contribution) schemes.

However, we hope 2025 will also bring the transitional provisions needed to allow schemes to complete their preparation for the increase in the normal minimum pension age – the earliest age at which members in good health can take their benefits without breaking pensions tax rules – from 55 to 57 on 6 April 2028. We also hope for an update on the likely timing of regulations to clarify the application of the "overseas investment" and "incentives" flags in The Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021. And we are looking out for confirmation of whether – and if so when – the government intends to proceed with its predecessor's reform of the employer notifiable events (events that DB scheme employers must notify to the Pensions Regulator).