Pension Schemes Bill launched
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News alert 2025/02
At a glance
The Government announced the introduction of the Pension Schemes Bill today. This News Alert provides an initial summary of the Bill based very much on Government announcements. The Bill itself appeared this afternoon and runs to 114 pages.
We will be tracking the Bill as it makes its way through Parliament and reporting on significant developments in LCP’s weekly Pensions Bulletin. Please also see our UK Pension Schemes Bill hub where we share our latest thinking on the Bill.
The detail
On 5 June 2025 the Government announced the introduction of the Pension Schemes Bill. As expected, it covers a multitude of areas with the possibility that more things will be added as the Bill makes its way through Parliament. We are currently expecting the Bill to obtain Royal Assent in early 2026, but a number of its provisions will require secondary legislation before they can come into force. The Department for Work and Pensions has helpfully published a roadmap setting out the Government’s provisional plan to implement these and other reforms across DC and DB workplace pensions. This contains, right at the end, a useful timeline stretching out to 2031 for when various aspects are intended to operate.
Although the Bill is new to Parliament its contents have been widely trailed with many of the topics inherited from the previous Government and nearly all of them having been developed through various consultations over the past few years. So, in that sense, there is little if anything in the Bill which is a surprise. In our reporting in this News Alert we link back to the most recent relevant preceding development on each of the topics where appropriate.
Measures impacting DC schemes
The Bill addresses a number of DC topic areas discussed below, nearly all of which have been under development for some time.
The roadmap document states that the “timeline for implementation of measures affecting DC schemes is driven principally by the 2030 date for the minimum size requirement” and also that the “government sees this as the watershed date for the vision for the DC market of the future to be in place”.
The Bill provides for the DC Value for Money framework to apply to DC occupational pension schemes from 2028 based on the roadmap. This framework, first mooted by the Pensions Regulator and the FCA in October 2018, has been developed in recent years through various consultations, with the most recent being in August 2024 when the FCA launched a consultation on it for contract-based arrangements (see Pensions Bulletin 2024/31). The Bill provisions are similar to those that the FCA is proposing, with those schemes found wanting having to take remedial action and possibly having to place their savers into a scheme that is providing value for money.
The Government wants to accelerate and help enable scale and consolidation in the DC market and to that end new rules will create multi-employer DC scheme “megafunds” of at least £25 billion by 2030, with the Government’s view being that bigger means better pension schemes which can drive down costs and which can invest in a wider range of assets. See Pensions Bulletin 2025/22 for a summary of the measures falling under this heading. These include the controversial reserve power being taken under which the Government can 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 success of the auto-enrolment policy has had an unwelcome consequence which is that many people have built up small DC pots here and there as they move from one job to another. Government has been looking into this small DC pension pots issue since at least September 2020 with various suggestions being put forward and working groups looking into the issue, most recently the Small Pots Delivery Group (see Pensions Bulletin 2025/17). The Bill sets out new rules to bring together small DC pension pots worth £1,000 or less into one pension scheme (for a particular individual) that is certified as delivering good value to savers. This should deliver savings to providers and simplicity to savers. However, this is still several years away since the roadmap states that the “implementation of the Small Pots Consolidation solution is purposefully designed to fully come into force once the market of a smaller number of megafunds is in place” – ie after 2030.
There are also measures in the Bill to enable contractual override and bulk transfers to make it easier to ensure contract-based DC schemes providers can move or consolidate their schemes and members’ pots to reduce fragmentation and improve outcomes, with adequate protections that ensure it is in savers best interests. This is currently expected to start from 2028.
Concern over inappropriate retirement choices being made by DC savers has occupied the mind of Government since at least November 2021, with the then Government deciding in November 2023 that members in trust-based DC schemes should be placed into a “backstop” decumulation solution by their pension scheme unless they make an active choice (see Pensions Bulletin 2023/47). The Bill now delivers on this, and it appears from the roadmap that the Government envisages this being in place by 2026/27.
Our viewpoint
Much of the above is about seeking to extract greater value out of DC provision, whether it be through consolidation of the market or consolidation of an individual’s pots. But it is likely to be quite some time before the measures start to have an effect.
Measures impacting DB schemes
The Bill includes two significant measures for DB schemes.
There is increased flexibility for well-funded DB schemes to “safely” release surplus, worth collectively £160 billion by the Government’s estimate, to support employers’ investment plans and to benefit scheme members. See Pensions Bulletin 2025/22 for a summary of the measures falling under this heading. These include a statutory resolution power, measuring surplus on a low-dependency basis (rather than a buyout basis) and adjusting the legislative test that the trustees must apply when deciding whether to release surplus. The roadmap anticipates that the surplus regulations and associated guidance will come into force by the end of 2027.
A statutory framework is to be introduced for the authorisation and supervision of DB superfunds to replace the Regulator’s so-called interim regime. This statutory framework was first announced through a March 2018 White Paper with the then Government deciding in July 2023 to implement it (see Pensions Bulletin 2023/28). It should hopefully encourage more than the current one player into this market, but the devil will be in the detail. Given that the relevant regulations and associated regulatory Code are expected to come into force in 2028, it will have taken at least ten years to implement by the time the first DB superfund is authorised under this statutory regime.
Although the Government has not said that the Bill will include measures to address the Virgin Media issue, it has on the same day as the Bill was launched, announced that it will introduce legislation to deal with issues arising from this judgment. This is very welcome news indeed!
Our viewpoint
Having spent many years in collective deficit, the majority of DB schemes are now in surplus. This along with a desire by a number to run on rather than buy out, means that in our view the DB surplus release flexibility will be the most significant aspect of the Bill for DB schemes. We expect this will lead to many new and interesting conversations between sponsor companies and trustees on surplus distribution, which is also covered in some detail in the Regulator’s new guidance published earlier this week.
We are delighted to see further progress being made on superfunds, and very much hope the timetable doesn’t slip any further. We would hope that as the new superfund regime progresses, the Regulator can update its interim guidance to keep track with any changes in the anticipated requirements, to enable superfunds to function well in the meantime.
Local Government Pension Scheme
The Government states that the Local Government Pension Scheme in England and Wales needs “consolidating and professionalising” with assets to be held in six pools that can invest in local areas infrastructure, housing and clean energy. Changes to the asset pooling requirements are to be met by administering authorities and pools by March 2026. See Pensions Bulletin 2025/22 for a summary of the measures that have been recently settled on which impact administering authorities and those running asset pools.
Other measures
The legal standing of the Pensions Ombudsman as a “competent court” to make enforceable determinations in pensions overpayment recoupment cases without requiring a county court judge’s order, is to be reinstated. This has been necessary since a 2023 Court of Appeal decision (see Pensions Bulletin 2023/44).
The PPF and FAS will be brought within scope of the pensions dashboard regime so that those with deferred entitlements from either will be able to view them alongside their state and any occupational and personal pension entitlements.
The restrictions that prevent the PPF Board from making material reductions on the annual PPF levy or even not requiring a levy in a given year when it is not needed are being removed. We hope that, as a result, the PPF Board will be able to announce that it will not seek to collect the 2025/26 levy it finalised in January 2025 (see Pensions Bulletin 2025/05) as its surplus position is such that it does not need the money. The roadmap says that the PPF levy changes will take effect in 2027.
The definition of ‘terminal illness’ in the PPF and FAS legislation is being extended so that eligible members who are diagnosed as terminally ill can receive payments at an earlier stage of their illness. This presumably means that the Private Member’s Bill introduced on the same topic (see Pensions Bulletin 2025/04) will now be withdrawn.
In conclusion
So, as has been shown, this is a Bill of many parts taking forward not only this Government’s pensions agenda but also much of the previous Government’s unfinished business. Other than on some points, we expect it will have a relatively smooth passage through Parliament. And then the work will begin on the secondary legislation and guidance needed to deliver many of its aspects. In the meantime, the Bill offers firm confirmation of the new pension policy landscape, and trustees, sponsors and providers can now progress strategic thinking with much more confidence.
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