Hymans Robertson's hopes for 2025 and reflections on 2024

Reflecting on the issues faced by the pensions industry in 2024 and his wishes for the year ahead, Calum Cooper, Head of Pensions Policy Innovation, Hymans Robertson, says:

“The biggest problem facing the pensions industry this year remains inadequacy. A generation who don't have enough to live independently, and with dignity, in their later life is deeply disappointing. Tackling this problem in the aftermath of an affordability crisis, with limited fiscal headroom and high national debt is a tough place to start. So, it’s a huge credit to the Government for prioritising this as we head into 2025.

“2024 has provided some glimmers of hope. The first UK CDC scheme was launched: an early sign of the pendulum swinging back from individual to collective savings to deliver higher pensions for the same spend. Clara, the UK’s first superfund, has improved outcomes for tens of thousands of former employees of Debenhams and Sears. And, the cost of providing a pension for life has fallen by 50 percentage points since the start of 2022. Add in a new Government that has made pensions a key feature of the Kings Speech, the Budget and the Mansion House Speech: signal that pathways to adequacy are now possible. 

“If we could be granted three wishes in 2025, my first would be for the Pensions Minister, Emma Reynolds, to make it easier for Defined Benefit (DB) pension schemes to deliver more. At over £1trn it’s too big to economically ignore. By making surplus sharing easier, the government could unlock tens of billions of pounds in extra productive finance to help grow the UK economy, whilst improving pensions too. 

“My second wish is for a commitment to clear pathways to adequate pensions for employers, employees, and the self-employed. The basis for this is Phase 2 of the Government Pensions Review which will begin in earnest. This is a big job as adequacy must be considered, in tandem, as part of  plans for the state pension and means tested benefits.

“Finally, my third wish. I hope that next year will bring an industry and government push to reenergise collective savings. This could be through the next generation of CDC designs, via decumulation solutions that pool risk. It could also be achieved through more conditional flexibility in DB benefits that can be offered to help current and future open DB schemes to thrive. The overarching goal is that we need to harness the power of the collective to deliver better pensions for any given spend.”

Commenting on what is top of his Christmas pension wish list and the year ahead, Paul Waters, Head of DC Markets, Hymans Robertson, says:

“Top of my wish list for 2025 is that stage two of the Government’s Pensions Review will deliver a coherent long-term plan for addressing UK retirement savings adequacy. Ideally, this will include future state pension provision and will work for all members of society. Collective DC will feature prominently in 2025 and we are optimistic about the role this can play. DC savers need help with a secure lifetime retirement income and CDC provides this. For it to thrive, a flexible design framework that allows schemes to support the needs of different groups is needed. ‘Decumulation only CDC’ should closely follow the multi-employer model.

“The megafunds pension consolidation regime, as outlined at the Mansion House Speech, should enable the industry to help members in legacy low value schemes move to modern, better performing arrangements. It's important that the minimum size scheme from the Mansion House announcements is not set too high, ensuring that innovation and creativity can remain a key feature from smaller more nimble market participants. A competitive pension market with a strong incentive for providers to innovate is essential to the success of any megafund regime.

“My final wish for next year, and beyond, is that “employer duty” is implemented in such a way that employers have a legal obligation to review their pension scheme on a periodic basis. Such a system would maintain a competitive market and help ensure that savers get the best value on an ongoing basis.”

Reflecting on DB investment in 2024, and her hopes for 2025, Elaine Torry, Co-Head of Trustee DB Investment, Hymans Robertson, says:

“2024 was quite a year for the UK DB pensions industry. The new government wasted no time in announcing its bold plans for transforming the pensions-savings regime. To create better futures for all in the UK, the government wants to use the money that’s sitting in long-term savings for kickstarting sustainable UK growth.

“This puts a focus onto DB schemes, which will need to revisit their investment strategies to consider, for example: what is their endgame? How quickly do they expect that to be affordable? Once it’s affordable, what does a long-term steady state look like? And what’s the most appropriate investment strategy to achieve this cost-effectively?

“Meanwhile, the investment landscape presents further challenges. Gilt yields and interest rates are elevated relative to recent history, despite inflation falling significantly, albeit still a little bit sticky. And the US dominance of equity markets shows no sign of diminishing – particularly the ‘Magnificent Seven’ group of tech stocks.

“But what will 2025 bring? From a positive perspective, funding positions are healthier than they’ve been for years. But our big hope for 2025 is that trustees of UK DB pension schemes don’t rest on their laurels. Instead, we’d like to see trustees in this position proactively consider the evolving roles of their protection and growth assets, and how these could affect the long-term success of their schemes.

“In particular, some of the areas we would like to see trustees get on their agendas for 2025 include revisiting the diversification within their credit and equity allocations. Also, setting some time aside to ensuring collateral assets are working efficiently, would be an exercise well worth doing.

“Overall, though, we would encourage trustees to recognise that a strong, and in many cases a surplus, funding position requires just as much careful management as a weak funding position with a meaningful deficit. Therefore, ensuring investment of schemes’ assets are assessed through a ‘rewarded risk’ rather than just a “risk” lens should be an important consideration for trustees and their advisors over the coming 12 months.”

Commenting on her hopes for 2025 for DB pension schemes, Laura McLaren, Head of DB Scheme Actuary Services, Hymans Robertson says: 

“The pensions market is set for further change in 2025. Amidst a significant pensions review, there’s a packed agenda of proposals and consultations, and an upcoming Pension Schemes Bill. Most of the initial focus has been on Defined Contribution (DC) and local government pension schemes. It has been disappointing not to have more clarity on the possibility of greater DB surplus sharing that appeared in the 2024 Options for DB schemes consultation.

“Top of my wish list for 2025 is that we see the new Government and regulators progress with thinking in relation to sharing surplus assets. With the right guidance and safeguards, this would help to open up the prospect of more DB schemes running-on for longer and in ways that can benefit members, sponsors and the wider UK economy. Whilst options are available to some schemes, the ability to use surplus does not exist for all nor does it permit things like one off lump sum discretionary increases. A lack of clarity over what will be possible risks stifling decision making and purposeful implementation. With many more schemes in the £1.4trn of UK DB pensions now strongly funded, it would be disappointing if the topic of access to DB surplus lost momentum at this important juncture.”

Commenting on her reflections on insurance in 2024 and hopes for 2025, Ailsa Dunn, Partner, Insurance & Financial Services, Hymans Robertson, says:  

“The past year has been notable for the insurance market in many ways. 2024 saw new entrants into both the primary and secondary markets for pension risk transfer, continuing to support market growth as the defined benefit pensions landscape matures. Population mortality almost recovered to pre-pandemic levels, providing some tentative signs of improvement. Looking ahead, one of the most news grabbing events was the publicity surrounding weight control drugs such as Semaglutide.  Cautiously, we are excited to see if they will have a significant effect on population health and mortality.  They have the potential to be a force for good if used correctly – increasing longevity and helping people live happier lives – but they don’t come without challenges. 

“Looking forward to 2025, there are two items on my Christmas wish list. The first is to see greater consensus around how the CMI model can remain fit for purpose and useful for practitioners. My second follows on from Rachel Reeves’ announcement in the Budget that the NHS will receive greater funding. I hope this increase in funding is used effectively and feeds through to shorter waiting times and reduced mortality rates.”