DC pensions market developments for 2026: What employers and trustees need to know

Pension Schemes Bill: Consolidation and Value-for-Money

The long-awaited Pension Schemes Bill is expected to receive Royal Asset in 2026. Key features include:

• Value-for-Money (VfM) rules: Schemes will need to prove they deliver strong net returns and good member outcomes or risk being forced to consolidate.
• Small pot consolidation: Expect legislation to tackle the growing issue of deferred pots.
• Post-retirement defaults: Trustees will be required to offer a default decumulation solution for members who don’t make an active choice.

Tip for employers/trustees:

• Start benchmarking your scheme against the potential VfM metrics now to avoid any surprises. There is some time to make changes given expectation is that data will be required at the end of 2027.
• Begin training on the post-retirement solutions being developed in the market. 2028 will come round quickly and most trustee boards will need to dedicate a reasonable amount of time to understanding the market.

Inheritance Tax (IHT) on pensions

From April 2027, unused DC pension pots will be included in IHT calculations. This could significantly impact estate planning.

Tip: Communicate this change to members well ahead of time. Encourage them to review their retirement and inheritance strategies, especially those with large pots. In particular, check in with your providers to see what they are doing to support your members through these changes.

Salary Sacrifice NIC Relief Cap

From April 2029, NIC relief on salary-sacrifice pension contributions will be capped at £2,000 per year. While this feels distant, employers should start planning including considering whether the benefit design for your scheme continues to be the most appropriate.

Tip: Model the impact on your workforce now. Consider alternative benefit structures or education campaigns to maintain engagement when the cap bites. Planning and allowing time to implement any changes slowly will allow companies to manage this cost effectively. Find out more in our latest article.

Guided retirement and targeted support

As DC pots continue to grow, (with total DC assets totalling £1.2 trillion in 2024 and the median DC pot size growing 18% in 2024) the need to support members is ever increasing. The FCA is introducing new rules on targeted guidance from April 2026. Combined with the Bill’s decumulation duties, schemes will need to help members navigate retirement choices.

Tip: Invest in digital tools and personalised guidance whether this is in-house or through a partnership with a provider. Think “retirement sat-nav”; clear, simple pathways that help members make informed decisions without overwhelming them.

ESG and investment trends

Default strategies are critical, especially for master trusts, because most members remain in the default fund throughout their savings journey and into retirement. As consolidation accelerates, defaults are becoming the main lever for delivering scale, diversification, and better outcomes.

Despite ESG pushback in some regions, UK DC schemes are doubling down on climate-aware investing. We’re seeing:

• Reducing carbon exposure through low-carbon funds
• Increasing allocations to climate-related opportunities
• Active engagement with providers and asset managers to drive climate action.

Other key trends:

• Private markets: Expect more allocations, particularly in master trust defaults, to improve diversification and long-term returns.
• Risk management: Continued focus on concentration risk in US equities and how it impacts default design across the glidepath, with clarity on where the risks lie within a members’ portfolio particularly as they get closer to retirement age.

Tip: Review your investment strategy now. Members expect sustainability and strong returns, so transparency is key. Consider how your default fund reflects these priorities because for most members, the default is their retirement strategy.

For employers

• Review your benefits strategy: Check how salary sacrifice changes will affect your workforce.
• Communicate early: Prepare member education on IHT changes and retirement options.
• Engage with providers: Understand how they have designed their default investment strategy and any changes they are considering. Ensure they’re ready for guided retirement and VfM compliance. Review their communication strategies for the year to ensure providers are setting goals to communicate with members across the year to avoid information overload.

For trustees

• Benchmark VfM now: Identify gaps before the regulator does.
• Plan for decumulation defaults: Start evaluating the solutions being developed by master trusts so you are ready to form a partnership by 2028.
• Review investment strategy and ESG policies: Ensure alignment with evolving member demographics, sustainability regulations, and long-term objectives. Consider exploring private markets for diversification and assessing emerging risks such as US equity concentration.

Key takeaway: 2026 will be about scale, support, and sustainability. Those who act early by reviewing their default investment strategy, taking account of VfM, planning for tax and NIC changes, and building robust decumulation pathways will be ahead of the curve.