The big pension shifts of 2025 and how to navigate them

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The year 2025 has proved another seismic period for pensions.

Labour pledged after winning power to shake up the retirement landscape and has set the wheels for significant reform in motion.

Proposed changes to pensions have been peppered throughout the year, spanning the tax rules, state benefits and the workplace regime. Taking stock of these developments, knowing when they’ll take effect, and understanding how they might affect you is key to making sure your retirement plans stay the course.

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Let’s run through some key changes and outline steps and tips to help you safely navigate the shifting terrain.

1) State pension age under review

Over the summer, the government launched the third review of the state pension age, amid growing concerns about the policy’s sustainability.

Across two reports – one from Dr Suzy Morrissey and the other from the Government Actuary’s Department – it will examine whether the rules around pensionable age are appropriate. Presumably the core touchpoints are whether the scheduled rise to age 68 between 2044 and 2046 should be brought forward and if state pension age should rise higher in the future. We await the outcomes, but it’s feasible that some of us might have to work longer to claim the state pension.

Although the future of the state pension is unclear, the importance of getting the maximum amount when you retire can’t be overstated. Research by Royal London last year found that only half of people who receive the new state pension, introduced in 2016, receive the full £11,973 annual, meaning millions are missing out on some valuable, guaranteed, inflation-proofed retirement income.

To pocket the full state pension, you need 35 years’ qualifying national insurance contributions (NIC) or credits. This shouldn’t be an issue for anyone who’s worked in the UK for most of their career but might be if you’ve spent large periods outside the labour force, such as to raise children.

• When will you get your state pension?
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To find out if you’re on track, it’s wise get a state pension forecast from gov.uk. If there are gaps in your record which create a shortfall, you might be able to plug them by making voluntary NICs.

Getting the full state pension can form the foundation of your retirement income but if you aspire to more financial comfort in your golden years, it’s crucial to accrue sufficient personal savings. The key here is to set clear retirement goals and start working towards them as soon as you can, which has become more important this year considering the state pension’s future uncertainty.

2) Workplace pension contributions to increase in the future?

Alongside the state pension age review, the government also revived the landmark Pensions Commission to “examine why tomorrow’s pensioners are on track to be poorer than today’s and make recommendations for change”.

The central focus for the review is whether to increase the minimum amounts under auto enrolment; the workplace pension initiative launched in 2012. Under current rules, these are 8% of qualifying earnings (between £6,240 and £50,270), with workers paying 5% and employers 3%. There are, however, legitimate concerns that these are too low, which may result in millions of people reaching later life with insufficient wealth to live comfortably. The review will assess the challenges facing self-employed workers who don’t have access to auto enrolment.

Should the Pension Commission decide to jack up the minimum levels, it’s unlikely to happen anytime soon, with increases phased in over time like when auto enrolment was introduced. That’s because businesses are grappling with higher NICs bills after the reforms implemented at the 2024 Budget and the cost-of-living crisis continues to choke workers’ disposable incomes. These challenges must be countered with the need to encourage people to save more as soon as possible.

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In the meantime, it’s important for workers to take matters into their own hands. Many employers go beyond the call of duty, offering pensions far more generous than the legal minimums. You may have to increase what you contribute, but this can be a savvy move as it’s essentially free money to deliver your retirement pot a shot in the arm. Contact your employer’s HR department and find out what’s on offer.

But even if your workplace sticks to the auto enrolment minimums, or you’re self-employed, the other big attraction with pension contributions is upfront tax relief, which could be 20%, 40% or 45% depending on your marginal rate of tax.

Another significant change to workplace pensions was unveiled at this year’s Autumn Budget. From April 2029, only the first £2,000 of salary exchanged for a pension payment will attract NI relief, which is 8% on earnings below £50,270 and 2% on anything above. Currently no cap applies. Whether this will influence how employers approach salary sacrifice is unknown; they have a few years to work things out.

• What you need to know about upcoming salary sacrifice changes

Making the most of salary sacrifice before the £2,000 threshold is implemented to enjoy the full NIC saving, provided what you do is suitable and aligns with your short- and long-term financial plans, is something to consider.

3) IHT on pensions moves closer, tax-free cash remains untouched

In terms of how your pension is taxed in later life, we've seen two important developments this year.

First, in July the proposal to bring unspent pensions into the inheritance tax (IHT) net entered draft legislation, dashing hopes the government might change its mind on this controversial policy.

Unless something dramatic changes between now and 6 April 2027, after this date any leftover pension savings on death will be added to your estate and face IHT if the recipient isn’t a spouse or civil partner and the amount exceeds your tax-free threshold. 

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Second, despite speculation that cuts were on the table at this year’s Autumn Budget, the maximum pension tax-free cash you can draw remains 25% of your total savings, capped at £268,275.

Speculation could, of course, return ahead of next year’s fiscal event, but we can tentatively assume tax-free cash will avoid reform (in the near future, at least), so think carefully about how you draw it. You can hook out the lot in one go, but you don’t have to, and staggering withdrawals can be effective way to provide a stream of tax-efficient income in retirement.

But bear in mind, undrawn tax-free cash isn’t preserved on death if it occurs after age 75, and if you pass away after 6 April 2027, whoever receives the pension will not only pay income tax on withdrawals at their marginal rate but could also face an IHT bill. Many investors are acutely aware of this deeply unwanted scenario, so are drawing surplus pension savings sooner than previously intended - with tax-free cash an obvious first port of call - and passing the proceeds down the family line.

However, the best approach to manage your tax-free lump sum and wider pension savings and mitigate a looming IHT problem very much depends on your personal circumstances, including life expectancy and access to other income sources. This can be a complicated decision, so if you’re unsure what action to take, seek expert advice from a regulated financial planner.

4) Task to tackle lost small pensions takes big step forward

In April 2025 we saw an encouraging step to address the growing problem of lost or forgotten pensions.

The government announced plans to launch a small pensions pot consolidator, seeking to round up the 13 million misplaced pots holding £1,000 or less. The exercise will boost the average worker’s retirement savings by around £1,000 and save businesses £225 million a year in unnecessary admin costs, the government claimed.

While this step is clearly good thing, there are further 17 million misplaced pensions. This largely due to that fact that every time you move employer, you’re enrolled on to a pension scheme, and job mobility is common these days.

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Having several pensions scattered around not only creates an admin headache, but these plans could be languishing in under-performing or ill-suited investments and suffer steep costs.

The launch of pension dashboards, which could be as early as late 2026, but more likely in spring the following year, will prove a massive help, enabling you to view and interact with your various pensions in a single, online hub.

In the meantime, a further solution and one that keeps matters in your control, is to track down (using the government’s pension tracing service if needed) and round up the various pensions you own and bring them under one roof. This can make it simpler to monitor your savings against your goals, lead to a wider choice of investments and reduce fees. And once you’ve obtained the relevant details about your plan, it’s a simple process. Just tell your chosen provider, for instance ii, the pensions you want to transfer and they’ll do the rest.

Before you sign on the dotted line, check that your plans don’t have anything valuable that will be lost on transfer. These can be found on pensions such as defined benefit schemes, and older-style plans with guaranteed income rates.

5) Workplace pensions to invest more in private assets by 2030

Where your workplace pension is invested might alter in the next four years’ time due to something called the Mansion House Accord. This is a voluntary agreement between 17 of the UK’s largest pension schemes to allocate 10% of their default funds – the investment solutions that workers’ savings are funnelled into if they don’t choose something else – into private markets by 2030, with half of this weighted to the UK. Private assets refer to companies that don’t trade publicly, encompassing sectors such as infrastructure and private equity.

The dual aim here is to direct more pension scheme money into UK-listed stocks to boost the domestic economy and improve saver returns.

However, the move hasn’t escaped criticism, with concerns that the increased volatility of investing in private assets offers no guarantee of better performance. The government in the summer produced calculations to illustrate the enhanced growth potential, and the numbers were far from compelling.

The good news is, if you don’t want to allocate 10% of your pension savings to private markets, you don’t have to. As stated above, the Mansion House Accord only applies to default funds, and most schemes offer a broad range of investing options to pick from. Default funds are designed to cater for a wide range of savers, so you may find something else is more suitable, anyway – especially if you’re young and need to maximise growth.

Regardless of this upcoming change, and the deadline is still four years away, it’s vital to review your pension investments whenever you join a new scheme and then periodically check they’re suitable for your personal attitude to risk, investing time frame and retirement goals. This applies to your workplace savings as well as private pots, such as self-invested personal pensions (SIPP).