Seven big pension changes coming in 2025 Brits need to be aware of

-Credit:Reach Publishing Services Limited
-Credit:Reach Publishing Services Limited


Brits are being urged to reconsider their retirement strategies in light of seven key pension changes anticipated within the next year. Recent years have seen rapid alterations to the pension system, especially concerning inheritance tax.

Experts from the industry predict that we will witness more substantial changes over the next 12 months. The new pensions minister, Torsten Bell, known for advocating bold reforms such as abolishing the triple lock on state pensions, is expected to accelerate innovative approaches to retirement savings.

Craig Rickman, a pensions specialist at interactive investor, has highlighted the most crucial upcoming changes, reports the Express.

ADVERTISEMENT

READ MORE: Savers with just £11,600 in the bank issued warning to avoid tax bill

READ MORE: Strictly's Kai Widdrington distracts fans with 'new look' on live tour

He commented: "The year 2025 is shaping up to be pivotal for the retirement landscape, as the new government seeks to make headway towards its goal of improving later-life outcomes for savers."

Pension dashboards

The Money and Pensions Service is developing new pension dashboards that will allow savers to view all their pension pots in one secure online location. The schedule for integrating with the dashboard infrastructure varies by the size of the scheme the largest schemes must connect by April 2025, while the smallest have until September 2026.

However, consumers might not be able to use the dashboard until 2027. Mr Rickman remarked: "While pension dashboards are far from the silver bullet to help everyone knock their long-term savings into shape, they should represent a giant leap forward."

ADVERTISEMENT

Pensions guru Craig Rickman urged: "Once they do go live, to get the most out of the dashboard it is essential for savers to engage with them."

Inheritance tax on pension pots

However, there's a significant change on the horizon: from April 2027, unspent pensions will fall under inheritance tax (IHT), slapping a 40% flat rate on those inheriting unspent pensions.

Mr Rickman voiced concerns that the relentless changes to pension tax rules could have lasting damage, stating: "Reforms to pension tax have become so frequent, drastic and sometimes abrupt, that we have little idea what the rules will look down the line, making it hard to save for our golden years in confidence."

He called for stability, saying: "One would hope the pension tax system gets left alone for the rest of the current parliament to bring some much-needed consistency."

ADVERTISEMENT

Clarity needed on pension IHT rules

People have a two-year window to decide how to change their retirement plans in response to the change to inheritance tax. Mr Rickman said one concern is that there will be double taxation around these pension pots.

Some 40 percent will be charged on any sums in the nest egg and the recipient will also be charged income tax on anything they receive. The net effect is that as much of 67 percent of the pension pot could be grabbed by HMRC.

Mr Rickman said: “The government must clear up some key aspects of the proposed regime as soon as possible. There is also some confusion around which types of pensions will be subject to IHT and which won’t. These must be clearly defined and communicated well in advance of the implementation date.

“We’ve seen growing opposition to the possible double taxation scenario, where beneficiaries could pay both IHT and income tax, should death occur after age 75.

ADVERTISEMENT

"Applying a single tax on death to avert an IHT reporting headache for estate executors and pension schemes and give savers a better idea about the potential tax implications of leftover pension savings on death makes far more sense in my view.”

Auto-enrolment contributions

The current contribution levels for workplace pensions will remain in place for the foreseeable future. This means that if you pay 5 percent of qualifying earnings your employer must pay 3 percent.

Mr Rickman said a recent Labour’s decision to shelve its pension adequacy review means hopes that minimum contribution levels would be increased have been dashed. He warned this means that, in many cases, the current pension contribution levels "are insufficient to achieve a comfortable retirement for millions of people".

He added: “This places added onus on individuals to engage with their retirement savings in 2025. Rather than rely on the government, we must all take control of our own future.

"A good place to start is to find out the maximum your employer is willing to contribute to your pension, as not all companies stick to the minimums – some are more generous. You might have to match their percentage payment, but there is a strong incentive to do so as it’s effectively free money.”

Sign up for the latest breaking news and top stories from StokeonTrentLive on WhatsApp