Articles - Quarter of a century of pension change and what may be next

By Graham McLean, Head of Scheme Funding, Shriti Jadav, Director, Retirement and Glyn Bradley, Director, Pensions Technical Unit, Retirement, WTW

In 2025, DB sponsors paid more than double into DC pensions than into their DB schemes and with the upcoming surplus legislation, some may even start to take cash back from their DB schemes. Looking ahead over the next 25 years, the system is poised for further evolution - we anticipate shifts towards collective models, mega master trusts, AI-driven personalisation, and a renewed focus on retirement adequacy and intergenerational fairness.

Actuarial valuations 25 years ago were subject to very different requirements (but in spite of what some of my younger colleagues claim, valuations in 2000 did not involve the use of slide rules, even if assumptions were generally somewhat simpler than they are now!). The Pensions Regulator and the scheme-specific funding regime did not exist, and scheme funding requirements were driven by a combination of scheme rules and the Minimum Funding Requirement (MFR), which only came into force in 1997, but was already starting to show signs of creaking after just a few years.

With the bursting of the dot-com bubble and other pressures proving too much for the formulaic approach taken by the MFR, early 2000s failures such as Allied Steel and Wire highlighted the absence of an effective safety net for members of underfunded schemes whose sponsors collapsed. In response, the Government established the Pension Protection Fund (PPF) in 2005 to provide a statutory backstop for members of failed schemes and at the same time created the Pensions Regulator (TPR) to oversee a new scheme-specific funding regime. Wind-up debts on solvent employers were strengthened to the cost of buying out benefits with an insurer. These reforms reflected a strong policy focus on increased protection for accrued benefits in DB schemes, in spite of increasing costs and the wave of schemes closing to new entrants and to future benefit accrual.

Just over a decade later, the collapse of BHS (2016), and British Steel (2017–18) highlighted that the new regime still did not protect members' pensions in all circumstances, prompting Government pressure for further enhancements to security. By 2025, only 4% of private-sector PPF-eligible DB schemes remained open to new members, and active membership had fallen below one million[1].

Auto-enrolment required employers to enrol eligible workers into a pension scheme by default. By 2018, over 10 million people had been newly enrolled, and participation among eligible private-sector employees rose from 40% to 88%. Alongside public-service backed master trusts like NEST and not-for-profit providers like The People's Pension, successful commercial arrangements such as LifeSight expanded rapidly, reflecting employer demand for scale, governance, access to a wider range of asset classes and advanced engagement tools.

However, the minimum contribution rate of 8% was widely seen as inadequate. Analysts warned that most savers would not achieve DB-style replacement rates. By 2025, policymakers were considering reforms to increase contributions, lower the starting age, and remove earnings thresholds to improve adequacy.

British Steel illustrated the dangers of members receiving poor financial advice, prompting the FCA to tighten rules and mandate guidance. Pension Wise was launched to help individuals navigate their options, but many still struggled with complex decisions. By 2025, the industry was exploring default drawdown options and collective decumulation models to support retirees.

TPR launched a consultation on a new Funding Code (the "Code") in March 2020, just as the country crashed into lockdown. After extensive and prolonged debate, the new funding regime finally came into effect for valuations with an effective date on or after 22 September 2024. By the time the Code came into force, many of the funding concerns that had originally motivated reform had been substantially eased by rising gilt yields, fundamentally altering the scheme funding landscape that the Code would operate on. With the UK economy in a very different position to when changes were first considered by Government, the political focus has, however, very much shifted from benefit security to economic growth and the potential for surplus sharing agreements, potentially limiting the extent to which the new framework drives more conservative funding outcomes.

The FCA focused on improving DC governance and addressing the advice gap. The PPF grew into a robust institution, managing over £30 billion and protecting hundreds of thousands of members.

Tax rules also changed many times. The Lifetime Allowance was introduced, reduced, and eventually abolished in 2024. The Annual Allowance was tightened, affecting high earners and prompting calls for simplification.

The next 25 years in pensions look to be just as transformative. Building on today's trends and new developments, we consider what the next quarter of a century may hold.

Viewed through the lens of constrained public finance, CDC represents a potentially durable compromise. It offers improved adequacy and longevity protection without creating open ended guarantees that sit uncomfortably with rising public debt, ageing populations and pressure on sponsors' balance sheets.

By 2050, most DC assets will be managed by a handful of mega master trusts, each with hundreds of billions in assets. Smaller schemes will merge or exit, driven by regulatory pressure and the need for scale. The contractual override facility will enable providers to move their GPP book of business into their master trust facility, further increasing scale and consolidation.

On the DB side, most schemes will have bought out their liabilities with insurers or transferred them to superfunds acting as commercial consolidators. Superfunds' regulatory limbo will be a distant memory, and looser eligibility criteria will have made them a mainstream endgame option – consolidating hundreds of schemes.

For members, consolidation can lead to greater simplicity. Portability and coverage will improve, and self-employed workers may be auto-enrolled via tax systems, all supported by advanced dashboards offering real-time balances, projections, and guidance.

AI will help retirees manage drawdown, forecast income, and make informed decisions both through its deep integration across the financial system, broader awareness of the individuals' broader lifestyle context, as well as through a wide range of AI-powered devices that retirees use. Regulators will need to ensure transparency and fairness in the application of AI, and cybersecurity will be critical. Greater reliance on opaque models will require strong governance, explainability and accountability.

While calls for flat-relief tax relief continue, practical challenges mean that significant reform remains elusive. We're likely to see continued refinement of existing allowances and incentives, with Governments balancing fiscal sustainability and fairness. Over a 25 year time horizon, however, as public finances come under increasing strain, the Government may be forced to confront more fundamental trade-offs between fiscal sustainability, incentives to save and perceptions of fairness across generations.

Auto-enrolment minimum contributions rise, through an increase in their percentage and the extension of the earnings band they apply to. By making employer contribution rates more visible to prospective employees, governments aim to sharpen focus on contribution adequacy and re-establish pensions as a differentiator in recruitment and retention, particularly in tight labour markets.

The triple-lock is eventually broken and the state pension age continues to rise to reflect demographic realities, policymakers may introduce more flexible options - such as early access for those unable to work longer due to health or occupational factors.

The UK pension system has evolved dramatically from 2000. If the past quarter century was about managing the decline of DB, the next is likely to be about how risk is shared – between generations, employers, individuals and the state. They will test whether the pensions system can be resilient, adaptive and fair in a world shaped by technological acceleration, demographic change and constrained public finances.