The plan to allow group personal pension schemes to transfer in bulk without member consent remains one of the more complex elements of the government’s plans to drive consolidation in workplace pensions.
While trust law is seen as conducive to such mergers, for GPP and GSipp schemes there needs to an override of established contract-based law.
What is changing?
Peter Glancy, speaking as a member of the Pensions Administration Standards Association DC Working Group, says the change has brought a key issue into focus: “whether the current legal and regulatory framework provides sufficient clarity and protection for those expected to implement them”.
He adds: “Under contract law, assets are owned directly by the scheme member, with an individual contractual relationship between each member and the pension provider.
“While contract law generally allows one party to vary terms in favour of the other without consent, eg a price reduction, any change where the benefit is not unequivocally clear, would require the agreement of both parties.
“In this context, the variation involves transferring the bundled administration of assets from one pension provider to another, without transfer of ownership. As it is not possible to guarantee the change will benefit every member in all future scenarios, obtaining consent would ordinarily be the prudent course.”
The provisions in this new Act are designed to enable bulk transfers between products or providers without this member consent. “This effectively introduces a limited override of contract law, where it can be demonstrated to regulators and an IGC that the transfer is expected to benefit the majority members in a range of plausible future scenarios.”
Glancy says the change is unlikely to see movement from contract into trust arrangements. “These provisions relate to changes in contractual terms, rather than the ownership of assets.
Sonya Fraser, partner at Arc Pensions Law says: “Detailed rules on the operation of the override will be made by the FCA in due course and it’s likely we’ll see this come into play in tandem with the new Value for Money and and small pot consolidation regimes.”
She points out difficulties remains as a large number of legacy DC arrangements contain feature such as guarantees, underpins or unusual charging or investment terms. “TPR has acknowledged these features can make the decision to transfer without member consent challenging.” she says. Solutions are emerging in the market, for example, with-profits funds and DC/GMP underpin benefits. “But as yet there isn’t a clear single route to appropriately tackle these benefits and care is needed,” she adds.
Gareth Doyle, senior investment consultant at Barnett Waddingham, says: “Increased regulatory focus on VFM, along with the wider consolidation agenda, is creating stronger expectations that trustees and providers will actively consider (or be forced to consider) bulk transfers where outcomes are weak.The question is shifting from ‘are we permitted to transfer?’ to ‘can we justify not transferring?’”
He says trustees and providers are increasingly expected to use existing bulk transfer powers proactively where they can evidence that the receiving arrangement delivers outcomes that are better or ‘no worse’ under VFM.
In practice, he says, this requires more robust and consistent VFM comparisons and enhanced member outcome analysis, particularly around default investment design, risk management, adequacy of retirement pathways and independent trustee, fiduciary and adviser oversight.
The real test, he says, will be consistency as to how these standards are applied across providers and trustee boards, and the transparency of this decision-making.
Blockers to bulk transfers
Fraser assesses some current blockers as well. She says: “An increasingly problematic ‘blocker’ is where transferring members have certain tax protections (e.g. a protected pension age) and, to ensure these are not lost on transfer, ‘block transfer’ requirements must be met.
“One of these requirements is that the member must not already be a member of the receiving scheme (or in the previous 12 months). It is becoming more of an issue in practice with the increased use of master trusts that this membership requirement isn’t met and so tax protections would be lost upon the bulk transfer.
The industry has been lobbying DWP and HMT to resolve this issue which is increasingly becoming a practical barrier to consolidation for impacted schemes.”
The role of VFM
Shantel Okello, policy researcher at the Pensions Policy Institute notes that transfers will be subject to a ‘best interests test’ certified by an independent expert and members notified beforehand.
“The sector still needs clarity on what objective metrics will be required, how the independent expert role will be defined, what the opt-out process looks like in practice, and who bears the cost of transfers.
“That said, the direction of travel has been clearly signposted for some time. The FCA raised the issue in its 2024 VFM framework consultation, noting that the government may choose to explore legislation enabling transfers without consent with appropriate protections, which is what is
now enacted.”
She suggests that the definition of the independent expert role in the Act could be more prescriptive. “Most savers won’t engage with a transfer notice, which means the opt-out is a protection that only active, financially literate members will use. For everyone else, the transfer happens by default.
“The concern here is that the safeguard is weaker than it looks because the population most at risk of a poor transfer decision is also the least likely to act on it. Where an employer switches GPP provider, existing active member assets still require individual consent to transfer (unless the override applies) which could potentially leave members with fragmented pots across two providers while still working for the same employer. The metrics underpinning override decisions are intended to draw on the VFM framework, but first VFM assessments are not expected until 2028.”
Doyle adds: “By normalising transfers without member consent on VFM grounds, the policy lowers the friction that has historically slowed the government’s drive for consolidation. It shifts expectations from permitting trustee action to expecting it where outcomes are weak.
“In doing so, the policy enables trustees to act decisively, rather than defaulting to inertia, or awaiting explicit mandation. It reinforces the principle that scale is a means to deliver better member outcomes, not an end in itself and it reduces political reliance on forced consolidation, allowing market-led solutions to drive change.
“However, this only works if VFM frameworks are applied consistently across the market, outcomes are assessed over time, and members, employers and trustees retain trust that consolidation is being pursued in their interests.”
Maurice Titley, commercial director data & dashboards at Lumera adds: “This policy should support the government’s aims to create a smaller number of larger pension providers that provide efficiencies of scale and, ultimately, better outcomes for members. It makes it easier to move members from legacy schemes to those that should perform better.
“However, short-term complexity may arise from legacy structures and transition costs which is why initial investment in technology, data and administration is so key to achieving improved value for money.”
Stranded pots
Titley says the risk of stranded pots following a bulk transfer without consent is higher, given it involves moving larger and more complex, heterogeneous pots than the mechanism involved in consolidating smaller, dormant pots. He says pension dashboards will have a vital role to play here, in helping people find lost pots and reducing further market fragmentation.
Doyle says: “Well-governed whole scheme transfers are more likely to reduce fragmentation than create it, provided trustees exercise appropriate oversight. That said, full transfers are not always possible. In practice, exclusions are most likely where individual members opt out (for example due to changes in fund choice); or where specific features exist, such as guarantees or protected benefits that cannot be replicated.”
Doyle adds: “Care will need to be taken by providers and their advisers. If handled poorly or mis-communicated, consolidation could be perceived as prioritising operational efficiency over member outcomes, a perception the industry would need to work hard to reverse.”
Adviser input
Doyle also suggests provider-led switches could push advisers to take schemes back to market. “This shouldn’t come as a surprise. If a provider changes a default investment materially or rationalises fund ranges without trustee or employer input, then advisers have a professional obligation to reassess suitability.
“In practice, this dynamic is strongest for active memberships. Adviser influence may be limited for deferred or legacy cohorts, though trustees will still need to assess value for money and member outcomes.
“Clearly, this could create tension where providers see changes as operational improvements, whilst advisers, trustees, and employers see them as a shift in the agreed proposition. Early, transparent engagement can mitigate this risk.
“This underlines the importance of early communication – evidencing positive impact on member outcomes – whist providing confidence that any new default genuinely aligns with the
scheme and employer’s specific membership needs.”
In terms of member’s moving to inappropriate strategies, he adds: “Bulk transfers and default changes can move members between lifestyle strategies and target date funds (or vice versa), potentially on different glidepath lengths or different retirement end-points. Without appropriate controls, there is a risk that changes are not fully aligned to members’ intended retirement outcomes.
“However, many legacy arrangements already place members on outdated or poorly aligned investment trajectories – [for example still targeting annuity purchase at 65] often with limited governance, and little opportunity for review. In that context, consolidation presents an opportunity to improve, rather than worsen, suitability.”