Pensions Reform Update – What Employers Must Know in 2025

If you are an employer in the UK, you have probably noticed quite a few conversations about pensions reform. As we move through 2025, some key changes are happening that you need to be aware of. Not just for compliance, but so that you can plan ahead for your workforce and finances. So, here is a breakdown in straightforward terms.

Policy Change on VAT for Pension Investment Costs

From 18 June onwards, HMRC has changed its policy on VAT for pension investment costs. Previously, employers had to split VAT with scheme trustees. Now, employers can reclaim the full VAT if they adhere to standard VAT rules. To you, this means you have to review your pension fund’s structure and talk to your VAT advisor before making changes. Also, this implies that there is now a potential to reclaim up to four years of VAT paid – a tidy saving.

A Fresh Review of the State Pension Age

The government has announced the launch of the third review of the State Pension age, starting in July 2025. This update doesn’t mean any immediate change for employers. However, it could mean future shifts to when people can claim their State Pension. That can affect everything from retirement planning to workforce demographics. If the age is pushed higher, you might see employees working longer. On the other hand, if it’s kept the same, you might see more retiring earlier.

State Pension Payments Got a Boost

Thanks to the reinstated triple lock, State Pension payments rose by 4.1% in April 2025. The increase is in line with average earnings growth between May and July 2024.

The new rates are:

• £230.25 per week for the full new State Pension (post-April 2016 pensioners)
• £176.45 per week for the basic State Pension (pre-April 2016 pensioners)

While this doesn’t change what you pay into workplace pensions, it might influence when employees decide to retire. Higher State Pensions could make early retirement more appealing for some.

The Pension Schemes Bill

A major Pension Schemes Bill is moving through Parliament and aims to shake things up:

• Small pot consolidation- Pensions under £1,000 will be merged into schemes with better value. Millions of employees will get cleaner, more manageable pots.
• Value-for-money framework- Schemes will need to prove they deliver fair returns.

In short, this will lead to more consolidation, more transparency, and bigger investment vehicles.

Revival of Pension Commission

The Government has recently re-launched the Pensions Commission to tackle concerns about retirement income sufficiency. Some sobering stats:

• A projected fall of 8% in private pension income for future retirees.
• Nearly half of working-age adults aren’t saving anything for retirement.
• Urgent focus on low earners, self-employed and underrepresented communities.

This is more about long-term strategy than immediate employer actions, but it expects policy recommendations soon. The re-launched commission will explore the complex barriers stopping people from saving enough for retirement, with its final report due in 2027. The pension system will be thoroughly examined to understand what is required to build a future-proof pension system that is strong, fair and sustainable.

While 2025 isn’t the year of sweeping pension changes just yet, important developments are underway. If you like to dig deeper into any of these, for example, a VAT checklist or help explaining small-pot consolidation to your team, just get in touch. As a reputed accounting firm, we are here to help you navigate the journey.