On June 5, 2025, the UK government published the Pension Schemes Bill 2025 in an attempt to reform the pensions system in the country.
The bill aimed to consolidate pension funds, improve outcomes for Defined Contribution (DC) members, and enhance investment in productive assets that will contribute to economic growth.
After many months of analysis, the bill is due for royal assent this year (2026). Also, many of the changes relating to defined benefit pension schemes will take effect beginning in 2027, while those relating to defined contribution schemes will be implemented between 2027 and 2030.
In preparation for the assent and implementation, pension schemes and their asset managers must gain a better understanding of what this bill is seeking to do and how they should adjust their practices.
We will consider both aspects of this preparation in this article. It’ll cover:
- A brief overview of the Pension Schemes Bill 2025
- The demand for better regulation: Concerns about the Pension Schemes Bill 2025
- Preparing for implementation: What pension schemes should be considering
Do you want to know more about how regulatory changes affect your portfolio allocation decision? Subscribe now to cio investment’s newsletter for regular updates about financial regulations and their impacts.
1. A brief overview of the Pension Schemes Bill 2025
Since the Pension Schemes Bill 2025 seeks to introduce many changes to UK pension regulation, it is essential to categorize these changes by their objectives.
What are these objectives?
“The Pension Schemes Bill will tackle schemes delivering poor returns for savers, combine smaller pension pots, and create bigger and better pension funds,” according to the UK Government.
We can cover these objectives under three categories: scale, outcomes, and fund management.
Scale-related provisions of the Pension Schemes Bill 2025:
Consolidation and scale: Redefining the structure of UK pensions
There are three key provisions related to scale:
- Statutory framework for DB superfunds: DB superfunds have operated without clear statutory backing, limiting the number of them operating in the UK.
The new bill seeks to encourage the consolidation of struggling DB pension schemes into DB superfunds and the entrance of new superfunds into the market.
It does this by providing formal legislation through a permanent regulatory framework that will guide the operations of superfunds and the consolidation of pension schemes into such funds.
“We have long advocated for fewer, larger well-run schemes with the size and skill to deliver better outcomes for savers. As such, we are also pleased to see the proposed legislative framework for DB superfunds, providing options and choice in defined benefit consolidation,” said Nausicaa Delfas, the Chief Executive of The Pensions Regulator (TPR), the statutory body overseeing workplace pension schemes.
Insurance buyouts were the leading solution for pension buyouts in 2025. However, with this new regulation, DB superfunds could become a popular alternative. They are less expensive and more accessible for weaker pension schemes.
- Automatic consolidation of dormant small pension pots: Due to frequent job changes, many employees have small pension pots with £1,000 or less. Some of these pots remain dormant as they transfer from one job to another.
The new bill allows trustees of DC schemes to transfer out small pension pots that have been dormant for the last 12 months without the members’ consent. They can transfer them to an authorised DC master trust or a personal pension scheme.
This will also make it easier for individuals to consolidate and manage their pension savings.
- New assets under management (AUM) requirements for master trusts and group personal pensions (GPP) plan providers: By 2030, all multi-employer master trusts and GPP plan providers that are used for auto-enrolment will have to operate at a megafund level.
This means having assets of at least £25 billion in their main scale default arrangements.
The goal is to benefit from economies of scale and build in more resistance into the auto-enrolment system.
However, those who can produce £10 billion in AUM can be spared if they can demonstrate that they can meet the new requirement by 2035.
Raising the bar on member outcomes and value for money
The bill also seeks to improve the member outcomes of DC schemes.
“We are ramping up the pace of pensions reform, said Torsten Bell, the Minister for Pensions. “Workers deserve to get better bang for each buck saved, and these sweeping reforms will make sure they do.:
It does this with three provisions:
- New DC value-for-money requirements: Trustees of DC pension schemes must assess and disclose the value for money they provide to scheme members.
This evaluation will occur across three categories: investment performance, costs and charges, and quality of service.
The most interesting part of this bill is that the Pensions Regulator will have the power to ask a DC scheme with very poor VFM ratings to transfer the DC pension rights in the scheme to another scheme, without members’ consent.
This is based on the expectation that the new DC scheme can provide better value for the members.
- Bulk transfers from personal pension schemes: Providers of personal pension schemes will have a statutory power to transfer pension rights in bulk to an authorised DC master trust or other personal pension schemes without members’ consent.
The only requirement is that the provider be reasonably satisfied that such a transfer is in the members’ best interests.
- DC decumulation: The bill also requires that trustees of DC pension schemes offer members ways to turn their pension pot into retirement income (decumulation options).
They are also required to automatically enrol members who don’t make an active choice into the scheme’s default pension benefit solutions or a suitable external arrangement if the scheme doesn’t provide one.
Shifting investment governance and asset allocation priorities
The following provisions are concerned with the investment activities of pension schemes:
- Reserve power to require investment in productive assets: The government will have reserve power to mandate that a minimum portion of schemes’ funds be invested in productive assets in general and UK productive assets in particular.
The goal is to increase pension investment in productive assets as a way to contribute to the UK’s economic growth.
- Asset pooling by local government pension schemes (LGPS): Changes to the operations of LGPS have been an important part of pension reforms in the UK.
Though asset pooling had begun under George Osborne (Chancellor from 2010 to 2016), there have been various proposals to deepen its scope and hasten its timeline.
The Pension Schemes Bill follows this trajectory. It seeks to make changes to the administration and investment practices of LGPSs. It also set a March 2026 deadline for pools to meet up with the new pooling framework and for funds to transfer all their remaining assets.
There is also the requirement that consolidated pools employ fund structures regulated by the Financial Conduct Authority (FCA) and comply with its requirements.
Furthermore, some provisions give the government greater power to regulate asset pool companies in the LGPS.
However, the expectation is that there will be more clarity about the full scope of changes the bill will require when secondary legislations come out.
“The provisions in the Bill provide a framework for many of the reforms proposed in the November 2024 Fit for the Future consultation, although some of the changes – and much of the detail – will be implemented subsequently through regulations and statutory guidance,” according to Local Government Lawyer, an online publication focusing on legal issues in the UK.
- Sharing of DB schemes’ surplus: Pension trustees can now amend scheme rules to allow for the sharing of surplus funds with employers.
Other provisions deal with the activities of the Pension Protection Fund (PPF), the administration of the Financial Assistance Scheme (FAS), and the legal standing of the Pensions Ombudsman to make enforceable determinations in pensions overpayment cases (in relation to both personal and occupational pension schemes).
However, the ones we have covered under the three categories above are the most relevant to pension schemes.
Yet, some words about the Virgin Media case might be essential since it deals with the validity of past rule changes.
In this case, the High Court ruled that past pension scheme rule changes were invalid because they weren’t properly certified by the scheme actuary when they were made.
The Pension Schemes Bill 2025 has given current scheme actuaries the right to make retrospective confirmations for previous rule changes. Thus, if trustees had treated any such changes as valid and they were not specifically ruled as invalid by the court before June 2025, they would be considered valid once confirmed by the scheme actuary.
2. The demand for better regulation: Concerns about the Pension Schemes Bill 2025
Current lack of details
One of the major concerns about the bill is that many details regarding its implementation are still obscure.
As said above, there is no clarification yet about many of the details relating to the new framework for LGPS.
“What we don’t currently have are the myriad regulations that will set out the detail in relation to most of the Bill’s provisions, so the precise impact is uncertain in many areas,” according to Slaughter and May, an international law firm.
To take another example, while trustees now have the right to override restrictions on the distribution of surplus funds, there is no clear rule about the funding threshold that confers this right on schemes.
The Bill does not specify the funding threshold that will need to be met before the power can be exercised – that detail will be in the regulations which have not yet been drafted. However, it is expected that the threshold will be based on the "low dependency funding basis" described in the DB Funding Code, though this will be subject to further consultation once the draft regulations are published.
Unrealistic objectives
Slaughter and May also believe that the bill might be overambitious in some of its objectives. One important example relates to the distribution of surplus funds to employers.
“We are already aware of schemes and sponsors that are interested in them, but whether they will result in the release of anywhere near the £160 billion that the Government believes schemes are holding in surplus assets is doubtful.”
Absence of incentives
Also, some experts doubt whether the government’s power to request a minimum investment in productive assets will have a significant impact.
“The spectre of mandation alone will not be sufficient to change investment behaviours,” according to Dentons, an international law firm. “Little will change unless the government ensures that there is a strong pipeline of suitable investment opportunities and trustees can get comfortable that investments are consistent with their fiduciary duties.”
This problem is also related to the lack of specificity of many of these provisions. While Dentons believes that trustees can be encouraged by tax incentives, among others, they also note that none have been proposed so far.
Undermining fiduciary duty
Some have also expressed other concerns about the government’s mandation power regarding productive asset investment.
First, requiring pension funds to invest in productive assets (up to a minimum threshold) can increase their costs and reduce the value they provide for investors.
“Whatever the hoped for gains, the potential downsides of a mandation power are not difficult to foresee – forcing schemes to invest in a particular asset class risks driving up costs and driving down value as funds compete for a limited pool of suitable assets,” according to Burges-Salmon, a law firm.
Second, some worry that such mandation power conflicts with the fiduciary duty of pension schemes. “And at a more fundamental level, critics see this as the thin end of the wedge in terms of mandating what schemes do with their members’ money – once Pandora’s box is opened, there is no going back,” as noted by Burges-Salmon.
If the government can demand that a certain amount be invested in productive assets, who knows how its power will be exercised in the future? And where does that leave pension schemes that now have to focus on regulatory compliance instead of maximising value for members?
Sacrificing diversity for consolidation
Many also worry that the consolidation of funds and the popularity of megafunds will erode competition, which will introduce inefficiencies into the system.
“The risk is you end up with a highly concentrated sector where all the participants are rewarded for failure and, in the case of pension schemes, employers have no real choice around what they do for their employees,” according to Tom McPhail, director of public affairs at The Lang Cat, a UK-based consultancy firm, in an interview with Corporate Adviser, a trade publication focusing on pensions.
He believes that the pension industry can experience what exists with government contracts, where four firms dominate.
“If you look at outsourcing from the public sector, there are effectively only four big firms competing for multi-billion-pound contracts, and in many cases now doing a pretty poor job and not delivering value for money. You can see the importance of retaining genuine market competition when going down this road.”
Little interest in sustainability and adequacy
While recognising the positive strides that the bill will create, some experts are concerned that it does not go far enough, at least in some directions. For example, it does not target issues like inequality and sustainability.
“This is a step in the right direction, which we welcome,” according to Charlotte O’Leary, the CEO of Pensions for Purpose, an organisation helping pension funds embrace impact investing. “However, as the UK faces a convergence of intergenerational inequality, climate risk and financial insecurity, pension reform must be bold, inclusive and future-facing. Pensions for Purpose calls on the Government to ensure the next stage of reform tackles adequacy head-on and embeds sustainability into the legal duties that guide every pension decision. We will continue working with our member Community and engaging in the forthcoming consultations on adequacy and fiduciary reform.”
Regarding inequality and inadequacy, they express concerns that there are no plans to help marginalised groups be on track to retire fully.
“We are concerned the bill does not address adequacy – the most pressing issue in the UK pensions system,” they noted. “Too many savers, particularly women and marginalised groups, are not on track to be able to retire fully. Pension contributions remain low, while living costs rise and home ownership declines. These interconnected risks are compounding generation by generation. We urge the Government to make pension adequacy the central focus of the next phase of the Pensions Review.”
3. Preparing for implementation: What pension schemes should do
Implementation is expected to begin in 2027 and continue until 2030, according to the roadmap.
However, proactive pension schemes that want less disruption can start taking the right steps in anticipation of the coming changes.
We’ll consider the steps that pension schemes can take under the same categories as the provisions of the bill.
Responding to scale-related provisions
Some of the actions that pension schemes can take in this regard include:
- Evaluate readiness to meet new AUM requirements: Multi-employer master trusts and GPP plans providers should evaluate their readiness to meet the new AUM requirements by 2030.
If £25 billion AUM is not feasible by 2030, then they should consider if they can meet the £10 billion requirement, while preparing to meet the £25 billion requirement in 2035.
- Consider if consolidation is necessary: Now that there is a legal framework for DB superfunds, smaller and struggling pension schemes should consider transferring their assets and liabilities into such funds to improve efficiency.
This option may especially be considered by pension schemes that cannot secure members’ benefits in full through an insurance buy-out.
- Set up systems to automate consolidation of dormant small pension pots: Now that pension schemes can consolidate small pots without members’ consent, they can automate such consolidations in pursuit of greater operational efficiency.
Responding to outcomes-related provisions
It's time for pension schemes to start paying more attention to the outcomes they provide for members.
Some of the things they can do include:
- Internal value-for-money review: The bill has provided enough details of what the VFM framework will look like. Proactive schemes should evaluate their performance across the three main categories and identify areas for improvement.
- Consider ways to improve member outcomes: The bill has said that schemes can now do a bulk transfer of pension rights if doing so would improve members’ outcomes.
This goes to emphasise how important it is to deliver value to members even if it means transferring their rights to other personal pension schemes.
Pension schemes that think such transfers would be for the benefit of members should not hesitate to do them.
- Pay more attention to technology and reporting: The new standards introduced by VFM reporting will require that pension schemes introduce more comprehensive reporting systems.
They should consider updating current systems and embracing better technology that will help provide the details required by regulators.
For example, regulators want pension schemes to provide pension dashboards that will give members a clear view of all their pension savings in one place.
“By bringing everything together, dashboards should make it much easier for people to understand what they have, plan with confidence, and make more informed decisions about their retirement,” according to Marianna Hunt, a financial journalist at Fidelity International.
Pension schemes are expected to adjust to this reality by October 31, 2026.
The Money and Pensions Service (MaPS) is expected to provide the first free public dashboard, after which other players in the pension industry are likely to follow suit.
- Help members with decumulation: Not all pensioners understand how decumulation works or what options they should consider. Pension schemes should take the initiative by providing decumulation options and helping members understand the strengths and weaknesses of each option.
Responding to fund management-related provisions
In preparation for fund management-related provisions, pension schemes can:
- Evaluate current allocation to productive assets: Since the bill only talked about the government’s power to require a minimum allocation to productive assets, we don’t know what that number will be.
However, proactive pension schemes can start evaluating their current allocation to productive assets and create a strategy for exploring that asset class in the future. It’s better to be well prepared than to make rash decisions due to regulatory pressures.
- Choose a stance towards surplus-sharing with employers: If current scheme rules do not allow surplus-sharing with employers, trustees should consider whether that rule needs to be amended.
Of course, this is not a decision to be taken lightly. Though there is permission to do it, trustees can always decide not to exercise it.
- Continue to emphasise communication and transparency: If you choose to include more private assets and to embrace surplus-sharing with employers, then you should clearly communicate such decisions to members.
There should always be clarity about investment strategies, retirement options, and operational approaches.
One of the easiest ways to adjust to the new realities introduced by the Pension Schemes Bill is to discuss it with other investment professionals and trustees professionals.
At cio investment club, we connect you with a group of investment professionals from across the globe, including in the UK. With them, you can exchange ideas and insights about developments in the UK and across the globe.
We also organise exclusive roundtables and investment breakfasts where you can have face-to-face interactions and one-on-one networking sessions with other investment experts.
Are you ready to gain more insights into regulatory developments in the investment world and how you can adjust to them? Register today to join the cio investment club.
Takeaways
- New AUM thresholds and consolidation mechanisms will reshape the UK pensions landscape, favouring large, efficient schemes.
- Value-for-money (VFM) assessments, bulk transfers, and mandatory decumulation options significantly raise accountability for DC schemes.
- Reserve powers on productive asset investment and LGPS asset pooling signal a stronger policy role in pension fund investments.
- Schemes that act now, on consolidation, technology, reporting, and asset strategy, will navigate implementation more smoothly from 2027 onward.
