Pension Updates for Public Service: July 2025 Edition
The Local Government Pension Scheme (LGPS) in the United Kingdom is undergoing significant changes and updates this year, with a focus on fairness, legal compliance, and administrative improvements.
Annual Pension Increase and Ongoing Consultations
Pensions in payment, including those within public service schemes, have received an annual increase of 1.7% as of April 7, 2025. This increase, set in line with Treasury Orders, applies across public service pensions, including LGPS members who are now retired or in payment.
Simultaneously, the government has issued a consultation proposing reforms for the LGPS, including addressing survivor pensions and death grants, tackling the gender pension gap, collecting data on scheme opt-outs, and making changes to forfeiture rules. The consultation, which closed on August 7, 2025, also includes technical amendments relating to the McCloud remedy and other amendments concerning five-year refunds, pre-2014 AVCs (Additional Voluntary Contributions), and small pot payments.
McCloud Remedy Updates and LGPS Code of Transparency
The McCloud remedy, a legal correction addressing age discrimination in pension benefits, has been a focus of updates within the LGPS. The latest Local Government Pensions Committee (LGPC) bulletin in June 2025 provided guidance and updates on implementing the McCloud remedy corrections within LGPS, reflecting efforts to fully address legal challenges around age discrimination in pension benefits.
Additionally, the LGPS scheme advisory board is consulting on changes to the LGPS Code of Transparency of investment costs and fees.
Regulatory Updates and Future Developments
HMRC has published drafts of the provisions the government intends to include in the Finance Bill 2025-26, which includes bringing most unused pension funds and death benefits within the value of a person's estate for inheritance tax purposes from 6 April 2027.
The government has also launched three consultations as a first step in developing a UK sustainability reporting framework. Moreover, the Pension Schemes Bill, which includes provisions and regulation-making powers in connection with asset pools/asset pool companies, governance reviews, and investment strategy for the LGPS, is expected to be signed into law in the next few months.
Connected Pensions and Data Compliance
Hundreds of pension providers and schemes and 20 million pension records, as well as the State Pension, are now connected to the pensions dashboards ecosystem. However, schemes might need to agree updated terms of business with scheme administrators, AVC providers, and complete some due diligence around the integrated service provider or software provider who will provide or support connection.
Schemes also need to put into place or update scheme data and asset maps to reflect the new data flows that will come out of dashboards connection, complete a data privacy impact assessment, update privacy notices, and update risk registers.
Legal and Regulatory Developments
The Data (Use and Access) Act 2025 has received royal assent. HMRC has also published the response to its technical consultation on the process for reporting and paying any inheritance tax due, stating that personal representatives will be liable for reporting and paying Inheritance Tax on pensions.
The National Health Service Pension Scheme (Member Contributions) (Amendment) Regulations 2025 have been made, which will amend the rules of the 2015 NHS Pension Scheme to update the member contribution tier thresholds from 1 April 2025 onwards.
The Pensions Ombudsman has set out its position on the recovery of past overpayments, confirmed that the Pensions Dishonesty Unit pilot is coming to an end, and upheld complaints related to failures in implementing amendments to pension schemes.
In summary, July 2025 marks a period of active consultation and regulatory updates for the LGPS, with final reforms expected after consultations close later this summer. The focus is on fairness, legal compliance, and administrative improvements, with an annual pension increase of 1.7% having been implemented earlier in April 2025.
- The Pension Schemes Bill, which includes provisions for investment strategy in the LGPS and regulatory changes, is expected to be signed into law, aiming to promote personal-finance by improving investment transparency and tackling issues such as age discrimination in pension benefits.
- As the pensions dashboards ecosystem connects hundreds of pension providers and schemes with millions of pension records, it's crucial for schemes to prioritize data privacy compliance, ensuring updates to scheme data and asset maps, data privacy impact assessments, and privacy notices while working with integrated service providers.
