Pensions Bulletin 2025/22

As we go to press…

We understand that the Government will publish the Pension Schemes Bill imminently, possibly as soon as today, 5 June 2025. This important Bill, signalled in last year’s King’s Speech (see Pensions Bulletin 2024/27) has come too late to report in this week’s Bulletin, but it will be covered in next week’s edition. In the meanwhile, do keep an eye on our Pension Schemes Bill resource page.

Government concludes its pensions investment review

On 29 May 2025 the Government published the final report of the first stage of its pensions review. This review, which was launched in July 2024 (see Pensions Bulletin 2024/28), had an initial focus on investment and an interim report on this was published in November 2024.

The final report outlines the now settled reforms to the DC workplace pensions market and the Local Government Pension Scheme (LGPS) in England and Wales, with further details to these reforms set out in the response to two consultations launched in November 2024 at the interim report stage. The first of these responses is on the DC workplace pensions market (see Pensions Bulletin 2024/45) and the second is on the LGPS in England and Wales (see Pensions Bulletin 2024/45).

The report goes on to bring together the Government’s various plans to boost the UK’s pipeline of investment opportunities to meet the investment ambitions of pension schemes, such as improving the investment environment, and commitments on infrastructure, housing, transport, and energy sectors.

In publishing this final report, Pensions Minister Torsten Bell said that the Government will shortly move on to the second phase of its pensions review, “focusing on the outcomes we are on track to deliver for future generations of pension savers and how those can be improved upon”. This next phase will be launched in the coming months.

The push for megafunds in the DC pensions market

The Government wishes to see bigger and better pension funds, as part of a pensions landscape that drives higher returns for savers and higher investment for Britain, and nowhere is this more apparent than in the decisions the Government has now taken to move the dial on consolidation in the DC pensions market following consultation on its proposals (see here and Pensions Bulletin 2024/45).

Scale

The Government is to legislate through the Pension Schemes Bill to require that by 2030 providers and master trusts must have £25 billion in at least one “main scale default arrangement”. Those who can demonstrate that they will have at least £10 billion in such an arrangement by 2030, will be able to go on a “transition pathway” provided they can show the Pensions Regulator that they have a credible plan to reach £25 billion by 2035. 

The Government will also provide for a “new entrant” pathway that will allow new market entrants with innovative products to seek authorisation, where they are offering something significantly different that could benefit savers or employers and have plans to reach scale in the longer term.

These scale requirements will not apply to single employer schemes, CDC schemes, hybrid schemes which are only available to a closed group of employers related through their industry or profession, or to default arrangements that serve protected characteristics, such as religion.

Consolidation

The Government wishes to reduce the number of default arrangements in the marketplace and so will legislate to prevent new default arrangements from being created and operated, except in certain circumstances with regulatory approval.

The Government has also decided not to take any action on standardising the pricing of default arrangements for the time being. 

As a further push to consolidation the Pension Schemes Bill will introduce a contractual override regime for the contract-based part of the market. These overrides will only be permitted where it is in savers’ best interests, certified by an independent expert. Where savers are bulk transferred within the same provider, it must be into the arrangement offered by that provider which provides the best value. The detailed rules on the use of the regime will be developed by the FCA and consulted on in the usual way.

The Government expects providers and trustees to take proactive steps to assess whether their savers should be moved into a “main scale default arrangement” (further engagement and consultation will take place to refine this definition before it is set out in secondary legislation, but it appears that this will be at arrangement level, not across the whole DC scheme or provider).

A ministerial led review, involving the FCA and the Pensions Regulator, will undertake an assessment commencing in 2029 of the market impact and operation of the contractual override measure and the separate Value For Money framework (which is also being legislated for in the Pension Schemes Bill), to examine the reasons why any default arrangements are continuing to operate outside main scale default arrangements. The detail of how the review will operate will be set out a later date and will depend on the number and nature of arrangements that remain.

In addition, the Government plans to have a legislative underpin to be able to tackle any remaining fragmentation as needed.

Cost vs value

The Government remains concerned that the DC pensions market is operating with an excessively narrow focus on cost, which can be detrimental to saver outcomes and limit investment into asset classes that might have higher upfront costs but can deliver more net value in the long-term and which are also important to driving economic growth.

The Value For Money framework is seen as being necessary to support the cultural shift needed in the DC pensions market, with the first assessments expected to take place in 2028. 

The Government has explored whether further action might be required, specifically through giving a role to employers and through the regulation of employee benefit advisers. However, it has decided that it is not necessary at this stage to take any action in this area.

Investment

Notwithstanding the Mansion House Accord (see Pensions Bulletin 2025/19) the Pension Schemes Bill will include a reserve power which would, if necessary, enable the Government to set quantitative baseline targets for pension schemes to invest in a broader range of private assets, including in the UK, for the benefit of savers and for the economy. 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. The reserve power will include provisions and safeguards to protect savers’ interests and any requirements will be consistent with the principles of fiduciary duty. 

Ahead of the Value For Money framework coming into being, the Pensions Regulator and the FCA are to launch, later in 2025, a joint market-wide data collection exercise which will include asset allocation information in workplace DC schemes. This is envisaged to run annually until the Value For Money disclosure data becomes available. The exercise will request asset allocation information from major DC providers, broken down by asset class and sub-asset class, with UK-overseas splits, and the first reporting will be available in early 2026.

Further consolidation of LGPS investment

The focus of the review for the LGPS in England and Wales has been to look at how tackling fragmentation and inefficiency can unlock the investment potential of the scheme, including through asset pooling and enhanced governance, while strengthening the focus on local investment.

Feedback to the consultation (see here and Pensions Bulletin 2024/45) indicated a broad consensus across these three areas and as a result the Government has confirmed that all the core proposals within it will be implemented and has provided additional detail where respondents have requested clarity. 

We set out below a brief summary of the now settled reforms. 

Asset pooling 

The Government will require that all administering authorities delegate the implementation of their investment strategy to, and take their principal investment advice from, their asset pool, and transfer all assets to the management of their pool. These pools are to be established as investment management companies authorised and regulated by the FCA, and each pool will be required to develop the capability to carry out due diligence on local and regional investments and to manage such investments. Administering authorities and asset pools, which remain in their current partnerships, will have a March 2026 deadline to meet these requirements.  

Following assessment of the pools against criteria including the benefits of scale, resilience, value for money, viability of meeting the proposed implementation deadline, and an options analysis of different means of meeting the minimum standards, two of the current eight asset pools will close. The Government expects those authorities seeking a new asset pool, and pools taking on new partner authorities, to adhere to the March 2026 deadline as closely as possible, with an aim to have shareholder agreements in place by March 2026, but will allow some limited flexibility where necessary, in recognition of the time required for this process to take place. 

UK and local investment 

Administering authorities and asset pools will be required to work with local authorities, regional mayors and their strategic authorities, and Welsh Authorities to ensure collaboration on local growth plans. The National Wealth Fund will also collaborate with the LGPS to address access to finance gaps and support strategic objectives on growth and clean energy. Due diligence on local projects is to be conducted by the asset pools. 

Administering authorities will be required to set out their approach to local investment, including by setting a target range for investment in their Investment Strategy Statement. Asset pools will need to report annually on the impact of their local investments.  

Governance 

Administering authorities must include an independent member who is a pensions sector professional, in an advisory capacity. Administering authorities will also be required to participate in a triennial independent governance review. 

Asset pools need to have a structure in place through which they can take on board the interests of the participating administering authorities and scheme members. However, it is being left to each asset pool to decide what model best suits the needs of the administering authorities and scheme members. 

Government responds to the DB options consultation

On 29 May 2025 the Government responded to the previous Government’s consultation issued in February 2024 on new options for DB pension schemes (see Pensions Bulletin 2024/16). The consultation was in two parts – revisiting how surplus is extracted from DB pension schemes and setting up a public sector consolidator. The Government is to go ahead with the former (as it indicated back in January – see Pensions Bulletin 2025/04) with some changes to be set out in the Pension Schemes Bill, but with the latter not immediately and perhaps not at all.

Facilitating DB surplus extraction  

Chapter 3 of the Government’s response to the DB options consultation addresses how surplus is to be extracted from a DB scheme in future. 

Statutory resolution power 

The Pension Schemes Bill will introduce a statutory resolution power to allow trustees to modify their scheme rules to provide for surplus sharing with the sponsoring employer from their DB scheme where existing scheme rules do not allow for this. It will be for trustees to decide whether they wish to use this power. The Bill will also repeal the requirement for trustees to previously have passed a resolution under section 251 of the Pensions Act 2004 to share surplus.   

The Government will not mandate how extracted surplus is used. It will also continue to consider the merits of a statutory power allowing for direct payments to members. 

Pensions taxation 

In relation to suggestions that changes could be made to the pensions tax regime to facilitate the distribution of surplus, such as through one-off payments to members, the Government believes that the current pensions tax framework is broadly balanced and fair, but it will continue to consider the tax regime for surplus extraction. 

Measuring surplus 

The Government is minded to allow surplus extraction above full funding on a low-dependency basis with no explicit margin in the law instead of the current buyout measure. Regulations on this will be consulted on in due course and actuarial certification will continue to be required. 

The Government makes clear that this measure will align with the scheme's own low-dependency basis as agreed for valuations in the new funding regime – meaning an important new role for this measure. 

There had been speculation that an explicit (and perhaps onerous) margin above low dependency would be required by law, or perhaps and even more onerous target of full funding on a buyout measure. However, it seems that this is not to happen, although presumably trustees will be able to set their own margins based on scheme circumstances when it comes to which part of the certified surplus they would be comfortable in releasing. 

The Regulator is to provide guidance for trustees on DB surplus extraction following the passage of the legislation. As part of it, it will reference a suite of options open to trustees to bring benefits to members from surplus sharing. The Government says that the “potential for members to benefit from any surplus shared with the sponsoring employer must remain a key consideration for trustees and is vital to the success of this policy”. 

The current test set out in section 37 of the Pensions Act 1995 for trustees to determine that releasing a surplus is “in members’ interests” will be amended to clarify that trustees must act in accordance with their overarching duties to scheme beneficiaries. 

Other matters 

The idea of a 100% PPF underpin to give trustees more comfort when releasing surplus is not being taken forward. The Government says that it would be unaffordable for most schemes, there remain concerns regarding the potential for it to create moral hazard in the DB universe and they do not think it is necessary to underpin surplus use. 

No DB scheme public sector consolidator for now

Chapter 4 of the Government’s response to the DB options consultation examines the proposals for the model for a Government consolidator of DB pension schemes that would be run by the Pension Protection Fund. Various design aspects are covered, but there are relatively few decisions as much needs further work. 

The previous Government said that it was going ahead with the consolidator with a 2026 implementation. By contrast, the current Government says that the idea of a public sector consolidator will continue to be considered but will not be included in the Pension Schemes Bill. It believes that commercial buyout and superfund providers will offer solutions for many DB schemes, but that as these may not work for every scheme it is continuing to explore what role a small, focused Government consolidator, administered by the PPF, could provide in helping to address a fragmented pensions landscape. 

Pensions Regulator issues guidance on “new models and options” for DB schemes

After extensive signaling going back to its 2023/24 Corporate Plan issued in April 2023 (see Pensions Bulletin 2023/17), the Pensions Regulator has finally published guidance for trustees of DB and hybrid schemes relating to some of the new ways in which trustees can seek to deliver their members’ promised benefits. A blog appeared around the same time.

The traditional model for closed DB schemes is one of accumulating sufficient assets with a long-term objective of undertaking a buyout with an insurer. But as funding levels improve, with support from regulatory developments, and as new solutions emerge in the market, there are options for trustees to consider when planning how to reach their long-term objective. Some of these may form part of trustees’ endgame planning. 

The Regulator’s guidance provides an overview of arrangements that may be available if trustees are looking to improve financial outcomes, scheme governance and member security. It highlights the key characteristics of these arrangements and the issues trustees may want to consider when assessing if they are right for their scheme. 

Topics covered include:

• Running on the scheme after having become fully funded on a buyout measure. This includes some discussion around the topical issue of surplus generation and its potential distribution.
• Alternative governance options – being fiduciary management, accredited professional trustees, accredited sole professional trustees, DB master trusts and DB multi trusts.
• Alternative financial arrangements – being capital-backed arrangements and superfunds.
• Alternative insurance solutions – being longevity swaps, buy-ins and buyouts.

The guidance concludes with some case studies.

Updated Stewardship Code published

Following an extensive period of outreach culminating in a consultation launched last November (see Pensions Bulletin 2024/44), the Financial Reporting Council has now published the 2026 Stewardship Code. Effective from 1 January 2026, this updated Code aims to support long-term sustainable value creation while significantly reducing the reporting burden for signatories.

Key features of the UK Stewardship Code 2026 include: 

• A revised definition of stewardship (modified slightly as a result of the November 2024 consultation) – focusing on the creation of long-term sustainable value for clients and beneficiaries. Stewardship is now defined as “the responsible allocation, management and oversight of capital to create long-term sustainable value for clients and beneficiaries”. 
• Reduced reporting burden – through fewer Principles and the use of “how to report” prompts instead of detailed reporting expectations.
• A flexible reporting structure – that gives signatories more options on how to submit information, and less frequency for certain submissions.
• The inclusion of targeted Principles – for different types of signatories including asset owners and managers, and for the first time, for proxy advisors, investment consultants and engagement service providers.

There is also new optional guidance (not seen in November 2024). This provides tips and examples to aid effective reporting. It has been published in draft on which comments are requested before 31 August 2025. It will then be finalised in the Autumn. 

The FRC reports in its feedback statement that there was a high degree of support for the updated Code and the flexible approach it offers. As a result, although there have been some amendments following the November 2024 consultation, they are in the nature of improvements, including some drafting aspects on the proposed Code. 

One of these changes is that 2026 will be treated as a transition year for existing signatories. Those submitting a renewal application will remain on the signatory list throughout this period in recognition that they meet the signatory requirements for the 2020 Code and to encourage them to embrace the updated, more flexible reporting framework without an immediate FRC assessment. 

The FRC is running a webinar on 18 June 2025 to discuss this finalised Code.

Pensions Regulator finalises its DB statement of strategy materials

On 28 May 2025, and without any announcement, the Pensions Regulator posted on its website its final response to its consultation on the statement of strategy (having released an interim response last September – see Pensions Bulletin 2024/36). The Regulator also published the confirmation wording that trustees will need to obtain from their Scheme Actuary in order to be able to provide a “fast track” valuation submission.

The final response confirms the data requirements and launches a new digital service (“Submit a Scheme Valuation”) for schemes to submit valuations in the new funding regime. Details, including a template statement of strategy spreadsheet, are available on this page.

Key points are as follows:

• The information requirements are largely as expected, although some simplifications have been made – for example, 40 years (rather than 100 years) of projected benefit cashflows now need to be provided and additional easements have been introduced for smaller schemes (broadly those with 200 or fewer DB members).
• Trustees will need to download, complete and submit a template statement of strategy spreadsheet. This spreadsheet appears to be very similar to the version issued when the interim response was published and will adjust (ie grey out) later inputs depending how initial questions are answered.
• Trustees will need to confirm that a copy of the statement of strategy (produced as an output of the Regulator’s spreadsheet) has been signed by the chair of trustees and provide the date of that signature.
• All schemes will also need to submit a copy of the valuation report and, where a scheme is in deficit (on a technical provisions basis), the recovery plan and schedule of contributions should be included in the valuation report so it is submitted as one document.

The confirmation wording that trustees will need to obtain from their Scheme Actuary in order to be able to provide a “fast track” valuation submission is, as expected, a limited confirmation of certain key elements of the fast-track requirements, so (assuming the tests are met) should be relatively straightforward to provide. This confirmation does not constitute an opinion on whether or not the legislation and principles in the DB Funding Code are being complied with and, as a result, trustees will need to consider the position more widely before stating to the Regulator that their valuation submission is fast track.

Some schemes may also need to upload one of the following:

• A summary of the trustees’ analysis of the maximum affordable contributions.
• A summary of the trustees’ assessment of supportable risk over the reliability period.

HMRC publishes Newsletter 170

HMRC’s Pension Schemes Newsletter 170 contains articles on submitting pension scheme returns, migrating pension schemes to the Managing Pension Schemes service, UK resident pension scheme administrators, lifetime allowance, relief at source and qualifying recognised overseas pension schemes. 

The articles on the first two topics are little more than reminders of previous announcements. By contrast, the article on the third topic contains useful new information on the administrative actions necessary ahead of 6 April 2026 where a registered pension scheme currently has a non-UK pension scheme administrator. 

Under the lifetime allowance heading HMRC announces an update to its guidance for correcting payroll errors. This now sets out the process that should be followed if a lump sum has been incorrectly reported as a regularly paid pension, as well as how to correct certain payments where the wrong pay or deductions have occurred or there is a need to amend pay or deductions previously reported. Separately, HMRC intends to have the lifetime allowance protection look-up service on the Managing Pension Schemes service by December 2025. 

Under the relief at source heading HMRC says that it intends to start to process claim forms on the Managing Pension Schemes service from April 2026, which it expects will reduce the time required to process payments. There is also a reminder that the deadline for submitting the 2024/25 annual return of information is 5 July 2025. 

Finally, HMRC announces that the ability to submit the APSS262 form for transferring UK tax-relieved pension assets to a QROPS on the Managing Pension Schemes service, which was intended to be available from April 2025, has now been pushed back to later in the year.

Actuarial body examines DB scheme design advice 

The Institute and Faculty of Actuaries has published its latest thematic review report, this time on pensions actuarial advice given on changes to member benefits. The report takes an in-depth look at current practices adopted by actuaries in DB scheme design advice, including member option exercises, discretionary pension increases, and GMP conversion. It also covers the treatment of potential conflicts of interest, and highlights areas where actuaries can further improve how advice is delivered to clients, as well as showcasing good practices already being adopted by IFoA members in this field. 

The report identifies that the overall standard of advice was good but draws attention to some areas for improvement. These included adequately explaining how the benefit changes might impact members, how the changes would affect the inflation protection on members’ benefits and how the changes may impact on individuals’ eligibility for means-tested state benefits. 

PLSA retirement living standards updated

The Pensions and Lifetime Savings Association has published this year’s update to its retirement living standards costs showing three levels of required expenditure to maintain different retirement lifestyles. Compared to the large increases over the last couple of years (see Pensions Bulletin 2024/06), there have been modest increases, in line with inflation, for the “moderate” and “comfortable” standards, but a fall for the “minimum” standards. The latter’s fall is due to the impact of lower energy prices and changes in the public's expectations for this standard.

The latest typical annual costs for living outside London are as follows:

• Minimum (“covers all your needs, with some left over for fun”) – £13,400 for a one-person household and £21,600 for a two-person household. These have decreased from £14,400 and £22,400 respectively.
• Moderate (“more financial security and flexibility”) – £31,700 for a one-person household and £43,900 for a two-person household. These have increased from £31,300 and £43,100 respectively.
• Comfortable (“more financial freedom and some luxuries”) – £43,900 for a one-person household and £60,600 for a two-person household. These have increased from £43,100 and £59,000 respectively.

The PLSA reminds its audience that the retirement living standards remain a guide to the costs of living in retirement, not a fixed savings target, and that those making use of them as a planning tool are encouraged to tailor them to their lifestyle, combining aspects from different levels. The PLSA has provided details on the constituents of each of the living standards in its research report for this purpose.