The Government has made no secret of their desire for pension schemes to play a bigger part in boosting individual security and UK economic growth through increased exposure to UK productive investments — and the bill has a number of bold proposals to deliver on that agenda, particularly when it comes to the DC sector.
Central to the Bill is the introduction of a standardised Value for Money (VFM) framework, requiring DC schemes to demonstrate that they deliver tangible benefits for members. This marks a shift from a perceived focus on low costs to assessing overall value, including investment performance, service quality, and retirement outcomes. Schemes deemed to offer poor value could be barred from taking on new business until underperformance is addressed – a potentially terminal implication in a competitive DC market so it will be interesting to see how providers and trustees approach this.
The government has been clear that the VFM framework is intended to accelerate market consolidation. To reinforce this, the bill will require that schemes reach £25bn in AUM by 2030 or have a credible plan to achieve that scale. Schemes falling short will likely need to merge, so predicting which schemes may be vulnerable to consolidation will become a key factor in scheme selection for any trustee, employer or advisers choosing a provider in the meantime.
Trustees have been able to consolidate occupational schemes by transferring assets without member consent, but this isn’t currently possible in contract-based arrangements. Many members remain in outdated products as a result. This bill introduces a contract override allowing providers to make non-consent transfers where it improves member outcomes, streamlining consolidation. This is very welcome and could have the biggest short term impact of any of the provisions in the Bill.
A decade on from the introduction of pension freedoms, there is concern that members are often left to navigate difficult retirement choices without much support – resulting in poor outcomes. In a bold move, the bill places new responsibilities on trustees and providers to offer a default solution which is designed to provide a regular income in retirement. Whilst members will still be able to choose flexible retirement options, the proposed change provides a clear reminder that pension saving is intended to provide retirement income, not just a capital sum.
Another long-anticipated reform is the automatic consolidation of small pension pots. These scattered accounts are costly for providers to manage and easy for members to lose track of. The first phase will focus on consolidating millions of small pots under £1,000. If successful, the government has suggested expanding the policy to cover larger sums. While the administrative challenge is significant, the potential gains are substantial: lower costs, better member engagement, and ultimately more meaningful retirement savings.
Looking ahead
The underlying political objective of many of these measures is to unlock billions of long-term pension capital in a way that supports UK economic growth. While there will be no immediate mandates on where pension funds must invest, trustees and providers will be required to disclose the proportion of funds invested in the UK and productive assets. However, the Pensions Investment Review includes the ominous statement that the Pension Schemes Bill will include a reserve power for the government to set targets if necessary.
Together, these reforms reshape the UK pension landscape. With good governance these changes will hopefully lead to further improvements in member value, and better long-term outcomes.
Good practice doesn’t change: trustees, providers, sponsors and advisers should continue to review investment strategies, operational quality, member engagement models and retirement support to deliver good outcomes. But the stakes are now higher and the price for poor performance or lack of scale could be drastic.
