The pensions sector saw a string of high-profile developments in 2025, from HMRC overhauling pension tax after £1.3bn in overpayments and annuity rates hitting new highs, to master trust assets crossing £25bn, Aviva launching a ‘flex first, fix later’ retirement solution, and the government confirming a £2,000 cap on salary sacrifice. Regulators also made their mark, with Now:Pensions fined for communications failings and the FCA unveiling a targeted support framework for savers.
HMRC to overhaul pension tax system after £1.3bn overcharges
At the start of the year, HMRC announced it would overhaul its pension tax system, which has overtaxed pensioners by £1.3 billion since 2015, by switching from ’emergency tax codes’ to regular ones starting in April 2025. These codes have caused many savers to pay too much tax upfront, forcing them to claim refunds. Over 470,000 people have claimed back £1.37 billion, and nearly £50 million has been refunded in just the past three months. The switch to regular tax codes guarantees that tax is taken out accurately from the beginning and prevents pensioners from having to request refunds later.
HMRC said this will “avoid an overpayment or underpayment at the end of the year” and reduce the need for end-of-year reconciliations or refund claims, particularly for those making multiple withdrawals.
Annuity rates soar amid rising gilt yields
January also saw annuity rates soaring, driven by rising gilt yields, up from 4.23 per cent to 5.179 per cent, and slower interest rate cut expectations, offering retirees stronger, long-term returns, with some gaining £8,200 more over 20 years, according to Canada Life.
Annuity rates were predicted to decline at the beginning of 2024, but rising 15-year gilt yields, which increased from 4.23 per cent to 5.179 per cent in January 2025, have reversed that trend. Additionally, markets have lowered their expectations for quick interest rate decreases, indicating that annuity rates might hold up well in the long run.
At the time Canada Life retirement income director Nick Flynn said: “Additional government spending, global uncertainty and higher taxes are all contributing to the recent increase in the cost of government borrowing. Whilst there are no cast iron guarantees, if this trend continues, then it’s a strong possibility that annuity rates will be maintained or even increase in 2025.”
Rapid asset growth saw 9 provider pass £25bn
In May, Corporate Adviser published its Master Trust & GPP Defaults report, which found that nine DC workplace pension providers now have assets in excess of £25bn — the minimum AUM threshold the government has proposed for multi-employer schemes. However, only five of these schemes have £25bn in one default fund or strategy.
The Government has previously proposed a £25bn minimum threshold by 2030, but exact details of how this relates to default strategies are currently under consultation. Corporate Adviser’s report also shows that a number of other schemes are also on target to reach this figure within five years, given current growth trajectories.
The report shows that overall DC provider assets grew by 19 per cent in 2024, and have increased by 48 per cent over two years. In total DC provider assets stood at £667bn at the end of 2024. The report shows that Aviva remains the biggest DC provider in terms of bundled assets. However, it shows that auto-enrolment providers — such as Nest, The People’s Pension and Now:Pension — typically enjoyed stronger growth in assets than the insurance-based providers, such as Aviva, Scottish Widows, Legal & General and Standard Life.
Aviva launched ‘flex first, fix later’ retirement option for master trust savers
In July Aviva launched a new ‘flex first, fix later’ guided retirement solution for its workplace customers. This is initially available to those saving through Aviva’s master trust, with a view to rolling out this new proposition to GPP customers in future.
This blended approach combines drawdown strategies in the early years of retirement before shifting to an annuity product later in life. The retirement option is designed to support savers who don’t pay for financial advice and want help with the complex decisions around taking income in retirement.
The solution aims to provide a sustainable income by dividing customers’ pension savings into three pots: a flexible income pot, a guaranteed income pot and an occasional spending pot. This model is designed to prioritise flexibility in the early years of retirement and security in the later years.
Before splitting the pension money between these pots, members have the option to take up to 25 per cent as a tax-free cash lump sum. Aviva said that while each pot is designed to meet a different need, members have a practical framework in place to help them feel more confident about spending throughout retirement.
Customers opting for this guided retirement option will have access to modelling tools, designed to facilitate alterations to spending levels and saving into these different pots as and when their circumstances change.
Now: pensions funded £100k for communications failings
Also in July Now: Pensions was fined £100,000 by The Pensions Regulator for failing to promptly report system failures, which meant that over 80,000 required communications weren’t sent to savers, impacting their ability to make informed auto-enrolment choices.
Two companies in the Now: Pensions group, Now: Pensions Ltd and Now: Pension Trustee Ltd, were each handed a £50,000 fine for not properly reporting significant events and breaches of the law in line with their duties as a master trust provider.
The breaches relate to historic system failures that led to more than 80,000 communications not being sent to members and potential members. These communications, mandated by auto-enrolment legislation, are designed to inform individuals of their rights and enable them to make informed decisions about their pensions. Some suffered financial and non-financial detriment as a result of missing out on this information.
Phoenix Group invests £75m into Australian private markets
Meanwhile, in August Phoenix Group made its first private debt investment into the Australian market. The UK savings and retirement firm has invested £75m with Worley — an energy and resources firm that is a key player in the Australian transition to net zero. The deal marked Phoenix’s first private transaction with an Australian counterparty, signalling the firm’s strategic expansion into the Australian and broader APAC markets.
Phoenix Group’s head of private market Cecile Retaureau said: “This transaction exemplifies what we look for in a private credit opportunity, securing a bilateral deal and providing long term financing to Worley with bespoke terms for Phoenix. The company’s pivotal role in energy transition and infrastructure sectors underscore the attractiveness of this deal, aligning with our global diversification goals.”
She added: “Australia presents a compelling investment landscape for our private markets strategy with opportunities across private credit, energy transition, as well as social and affordable housing.
OBR confirmed Reeves will curtail salary sacrifice on pensions
The Office of Budget Responsibility confirmed the government will scrap unlimited salary sacrifice on pensions, limiting the maximum contribution to £2,000. The confirmation came ahead of the Chancellor’s Budget speech in November and was published in the official economic and financial outlook on the financial impact of the announced changes.
The changes will be implemented from April 2029, and will mean that salary-sacrificed pension contributions above £2,000 will be treated as ordinary” employee pension contributions” in the tax system and be subject to both employer and employee NICs. Employees pay NI at 8 per cent of salaries up to £50,000 and 2 per cent above this, with employers paying NI at 15 per cent.
The OBR forecasted that this measure will raise an additional £4.7bn for the Treasury by 2029-30.
FCA unveils targeted support framework
The end of the year saw the Financial Conduct Authority launch its highly anticipated targeted support framework to help firms provide consumers with better investment and pension guidance—applications opened in March 2026, with a provisional launch scheduled for April.
The FCA said the new service could reach at least 18 million people over the next decade. It is designed to support those who are not taking regulated financial advice, including around 7 million adults with more than £10,000 in cash savings. The regulator has also finalised new consumer disclosure rules through its CCIs regime. In addition, it is consulting on proposals to modernise pension rules, including projections and non-advised defined contribution transfers.
The FCA also confirmed that its proposed targeted support regime will not apply to master trusts or other occupational DC schemes overseen by The Pensions Regulator (TPR). It reiterated that it has no powers to place binding requirements on trustees, with the regulation of these schemes sitting with the Department for Work and Pensions (DWP) and TPR. The FCA pointed to chapter 9 of its Policy Statement, which sets out the support trustees can already offer members approaching retirement.
The FCA added that detailed policy design for guided retirement is still under development. If the Bill is approved by Parliament, it plans to publish a discussion paper in spring or summer 2026 to explain how the two regimes should interact.
