James Newcome
- Senior Associate
- Pensions & Employee Benefits
On 5 June 2025, the UK Government published the Pension Schemes Bill, outlining significant reforms aimed at transforming the defined contribution (“DC“) pension scheme landscape. The Bill was accompanied by the Government’s final report on its Pension Investment Review and a DWP publication entitled “Workplace pensions: a roadmap“. The reforms set out in the Bill focus on enhancing member outcomes, promoting scheme consolidation and aligning pension investments with long-term economic growth objectives.
The Bill contains wide ranging provisions and aims to address challenges and inefficiencies within the DC sector. Key proposals include accelerating the consolidation of large DC funds, the consolidation of small deferred pension pots to improve administrative efficiency, and the introduction of a statutory “Value for Money” framework to ensure better returns for savers.
The key elements are outlined below and mark a significant step in reshaping the future of DC pension schemes in the UK.
(1) Consolidation of Large DC Funds
The Government has announced changes to accelerate the consolidation of DC schemes, with a view to reducing fragmentation in the current market, and to introduce the concept of “megafunds”. Under the Pension Schemes Bill, providers and master trusts used for auto-enrolment will be required to have at least one “main default arrangement” with assets of £25 billion by 2030.
There will also be a “transition pathway” for schemes with smaller funds. Under this “transition pathway”, providers and master trusts will have to show they will have at least £10 billion in their main default arrangement by 2030 and that they have a credible plan to reach £25 billion by 2035. Regulations will likely follow the Pension Schemes Bill to provide further clarity on these reforms. Regulatory approval will also be required by The Pensions Regulator (for authorised DC master trusts) and the Financial Conduct Authority (for contract based schemes). Amendments will also be made to the Financial Services and Markets Act 2000 to introduce a contractual override regime for contract based schemes. This will enable providers of work – place pension schemes to make, subject to safeguards, changes to pension contracts to facilitate consolidation of schemes.
The Government’s objective is to encourage the development of fewer, larger schemes capable of delivering better outcomes through enhanced investment strategies, stronger governance and lower costs due to economies of scale.
(2) Consolidation of Small DC Deferred Pots
To tackle the proliferation of small deferred pots, particularly among auto-enrolled members who change jobs frequently, the Pension Schemes Bill will introduce a framework for the automatic consolidation of pension pots worth £1,000 or less into one scheme. The framework would enable transfers (without member consent) from personal pension schemes where it is considered to be in the members’ best interests to do so. Any transfers would be certified by an “independent expert”.
This reform aims to reduce administrative complexity and improve retirement outcomes for members by aggregating small pots into larger – and potentially therefore more impactful – pots. The Bill contains framework provisions for this, with regulations providing further detail to be consulted on after the Bill’s Royal assent, made during 2026 – 2027 and taking effect not before 2030.
(3) Value for Money (“VFM”) Framework
A new Value for Money framework is introduced in the Pension Schemes Bill, which will require DC schemes to assess and disclose how they deliver value across key elements, such as investment performance, costs, charges, and service quality. This includes any actions required where the scheme is not delivering in accordance with the VFM metrics. Trustees who fail to demonstrate adequate VFM may be required to wind up and consolidate. The framework is aimed at supporting better decision-making by employers and trustees, ultimately with the aim of improving members’ benefits.
(4) Duty to Offer Retirement Income Solutions
The Bill also introduces a new duty on trustees of eligible DC schemes to provide default retirement income solutions to members approaching retirement. Trustees will be required to present a selection of options to members, and place disengaged members into a default solution. It will, however, be possible for members to opt-out of the default solution should they wish to.
Members will therefore still have the freedom to select a solution, but this proposal will provide extra support to those who need it. The Government hopes this will simplify retirement options and improve members’ outcomes at retirement. Regulations will be needed to flesh out the provisions in the Bill.
(5) Collective Defined Contribution (“CDC”) for Multiple Employers
The DWP announced on 29 April 2025 that new regulations will be introduced to facilitate the establishment of multi-employer CDC schemes. These schemes will allow multiple unconnected employers to pool their employees’ pension pots into a collective fund. The pooling of resources aims to enhance investment returns and provide members with a target income for life, akin to a Defined Benefit scheme, but without the associated employer funding risks. The forthcoming regulations are expected to be laid in Autumn 2025. These proposals appear to be within the authority of pre-existing pension legislation and so are not dependent on the Pension Schemes Bill itself.
(6) Measures to Encourage DC Scheme Trustees to Invest in a Particular Way
The Government plans to introduce a “reserve power” which would allow the Government to set quantitative investment targets for DC pension schemes. This power is designed to promote greater investment in private assets (including in the UK), in areas such as infrastructure, clean energy and housing. The Government continues to emphasise its preference for voluntary compliance. However this power is there as a contingency to ensure alignment with national economic objectives should relevant scheme not comply voluntarily.
The final report of the Pension Investment Review states:
“The government does not anticipate exercising the power unless it considers that the industry has not delivered the change on its own, following the Mansion House commitments. Moreover, it would only intervene in this way having made a thorough assessment of the potential impacts of any proposed quantitative targets on savers and economic growth.”
Wedlake Bell Comment
The Pension Schemes Bill represents a potentially significant transformation of DC schemes. It reflects a shift in policy, with a renewed emphasis on scheme consolidation, value for money and retirement adequacy, which reflects growing recognition that members need schemes capable of delivering real growth and reliable retirement income.
At the same time, the Government appears to be actively seeking to harness the power of long-term pension capital to support national economic development and the Bill potentially signals a more interventionist approach. How far this turns out to be consistent with scheme members’ best interests remains to be seen.
It is important that trustees and employers proactively assess how these changes may affect their schemes and consider any necessary preparatory steps. Whilst the direction of travel seems to be clear, many of the details are not yet known and detailed regulations will follow providing further clarification on many aspects of the Bill. There will also be a significant amount of time involved for parliamentary scrutiny of the Bill and subsequent regulations through 2026 and onwards. The Wedlake Bell Pensions Team will continue to monitor the progress of the Bill and provide further updates as the legislation develops.
Meet the team:
Megan Raine Milbourne
- Solicitor
- Construction
