Background
The UK government pension reforms of 2025 are driven by a combination of economic, social, structural goals aimed at achieving a number of objectives including modernizing the pension system, improving retirement outcomes, while unlocking capital for national growth:
1. Driving Economic Growth
• The government aims to unlock billions in pension fund surpluses, especially from well-funded defined benefit (DB) schemes, to invest in the UK economy.
• Surplus funds will be able to be redirected to support strategic initiatives such as infrastructure projects.
• The reforms are part of a broader strategy to “rewire the economy” to remove regulatory blockages to growth.
2. Fairness of the State Pension
• The reform agenda includes a focus on making the State Pension system fairer, especially for manual workers, women, carers, low-income earners by adjusting the pension age or payments or both to be more aligned to the needs of these historically marginalized groups.
• Proposals include flexible pension ages based on occupation, life expectancy, while improving recognition of unpaid work.
3. Consolidation
• The government is pushing for consolidation of small pension pots (under £1,000) into authorized schemes to reduce fragmentation while improving value.
• Creation of multi-employer defined contribution (DC) “megafunds” (minimum £25bn) is intended to drive down costs thus enabling broader asset diversification.
4. Value for Money and Transparency
• A Value for Money (VFM) Framework will require pension schemes to report performance including costs more transparently.
• The VFM will help savers understand whether their pension is delivering good outcomes while protecting them from underperforming schemes.
5. Modernization of Auto-Enrolment
• Plans include expanding auto-enrolment by lowering age as well as income thresholds, helping younger or part-time workers save earlier.
6. Gender and Income Equity
• Reforms aim to close the gender pension gap by:
• Enhancing NI credits for carers
• Ensuring equal workplace pension contributions
• Exploring flat-rate pension tax relief to benefit lower earners
Together these reforms mark a transformative moment for how pension capital is deployed, with a clear policy push towards private markets.
For fund managers and administrators, this signals a new opportunity as well as a potential threat of increased operational complexity, particularly across valuation, accounting, and regulatory reporting demands.
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Reform Highlights
• Mansion House Accord – 17 major DC pension providers have pledged to allocate 10% of default funds to private markets by 2030, including 5% to UK investments, unlocking an estimated £50bn.
• Pension Schemes Bill – Introduces a “reserve power” allowing government to mandate allocation targets if voluntary commitments fall short.
• Defined Benefit Surplus Reforms – Enables schemes to reinvest surpluses into UK businesses or enhance member benefits.
• Scale Through Consolidation – Drives creation of mega-funds (£25bn+) to improve efficiency and expand private-market access.
• Expected Impact – By 2030, up to £74bn of DC assets could flow into private markets, including £28bn from Local Government Pension Schemes (LGPS).
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Implications for Fund Managers
1. Shifting Asset Allocation Strategies
The reforms accelerate movement toward illiquid, long-term investments, demanding:
• Advanced portfolio modelling and stress-testing tools.
• Integrated ESG and impact metrics in investment decisions.
• Enhanced risk analytics to evaluate private-asset exposure.
2. Rising Regulatory Oversight
With new “reserve powers” to mandate investment levels, fund managers must:
• Maintain embedded compliance tracking.
• Keep comprehensive audit trails for all decision-making.
• Scenario-model allocations under multiple regulatory scenarios.
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Implications for Fund Administrators and Accountants
1. Valuation and Reporting Complexity
The new Value for Money framework raises the bar for transparency and performance measurement, particularly for illiquid assets.
Administrators will need to manage:
• Fair-value estimation for private assets.
• Performance attribution across complex vehicles.
• More frequent and detailed regulatory reporting.
2. Evolving Accounting System Requirements
Fund accounting platforms must now handle:
• Multi-asset structures across private equity, credit, infrastructure, and real estate.
• Open-ended or evergreen share classes.
• Automated workflows for commitments, calls, distributions, waterfalls, and fees.
• Complex carry models and private-markets metrics such as IRR, TVPI, DPI, RVPI, MOIC.
3. Data Integration and Transparency
Operations functions will require:
• API-driven integration with custodians, GPs, and valuation agents.
• Real-time exposure dashboards for compliance monitoring.
• Strong data governance to meet institutional and regulatory expectations.
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Strategic Opportunities for the Industry
• Technology Investment – Firms modernising early will gain a competitive advantage as reforms take hold.
• Operational Efficiency – Consolidation into mega-funds will require scalable, automated systems.
• Client Engagement – Transparent reporting and real-time insight will help retain institutional clients.
The UK pension reforms are not just a policy shift, they’re a call to action for the investment industry. Fund managers/administrators must embrace innovation as well as the enhanced compliance/investor reporting through operational agility in order to thrive in this new landscape. Those who adapt early will be best positioned to unlock the growth potential the reforms aim to deliver.
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Legacy fund accounting systems were built decades ago for simpler times.
🍋 LemonEdge is built for today’s private-capital reality, cloud-native, flexible, and designed to handle scale and complexity from day one.
Functional Power:
• Maintain an immutable audit trail for all activity.
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• Automate commitments, calls, waterfalls, fees, and carry structures.
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• Build and monitor custom ESG and target metrics with no code.
Scalable by Design:
• Our cloud-native architecture scales seamlessly with fund growth and integrates via open APIs with custodians, valuation agents, and market data providers.
• Transparent Reporting
• Build or modify reports instantly using the LemonEdge Reporting Engine, then deliver them securely to investors, managers, or regulators via the LemonEdge Portal.
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👉 Book a demo or contact us at sales@lemonedge.com to see how LemonEdge can future-proof your operations.
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