UK Pension Schemes Bill: what you need to know

The Bill provides for a new legislative framework applicable to the authorisation and supervision of DB superfunds, to replace the Regulator’s so-called interim regime. This includes rules on capital extraction and paves the way for new providers to enter the market. Quite lengthy Bill clauses have been needed to cover the necessary ground. It also appears that the gateway tests for schemes to transfer to superfunds are being weakened compared to the current interim regime, with the effect that more schemes will be able to consider using this route to deliver their members’ benefits than can do currently.

The relevant regulations and associated regulatory Code are expected to come into force in 2028. 

Scheme consolidation

To accelerate and help enable scale and consolidation in the DC market the Bill sets out new rules that will create multi-employer DC scheme “megafunds” of at least £25 billion. DC multi-employer schemes operating in the auto-enrolment market need to have £25bn in assets across their pension products by 2030 but there is also an easement whereby providers with over £10bn in assets and a credible plan for achieving scale will have until 2035 to do so.

There is also a 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. This appears to be largely baked into the proposed law relating to master trusts and certain group personal pensions having to build up their asset holdings in respect of their “main scale default arrangement”.

Decumulation

The Bill contains a new duty on DC scheme trustees to offer a suite of decumulation products and services including default pension benefit solutions, which are suitable for their members and consistent with pension freedoms. Such services are to act as a backstop unless the member makes an active choice. It appears from the roadmap that the Government envisages this being in place by 2026/27.

Small pots consolidation

The Bill provides for an authorised and multiple default consolidator model, whereby certain DC pots worth £1,000 or less will be automatically swept up into a consolidator scheme that is certified as delivering good value to savers. Again, quite lengthy Bill clauses have been needed. 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.

Contractual override and bulk transfers

The Bill enables contract-based DC schemes providers to 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.

Value for money

Whilst the framework for contract-based schemes is being finalised by the FCA, the Bill contains measures to apply the framework to trust-based DC schemes, 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. Once more, lengthy Bill clauses have been needed.

It is worth noting that there is much more to this than measurement and reporting. For example, a “not delivering” rating starts a process that could result in the scheme or arrangement being transferred to a better scheme. An “intermediate” rating (of which regulations may specify more than one) also starts various requirements – including preparing an “improvement plan” and providing that to the Regulator, so it is not a “benign” rating. The Pensions Regulator is being given significant new discretions and intervention powers in this area, including challenging a rating assigned by trustees/managers. The framework will apply to DC occupational pension schemes from 2028 based on the roadmap.

In January 2025 the Government said that it is to consider giving the PPF Board more flexibility when setting the levy. The PPF has said that it would have considered a zero levy for this year, given the robust funding position of the PPF, but cannot do so because it would then not be able to raise any levy again, as it is currently prevented from making annual increases of more than 25% in the levy. This flexibility needs primary legislation and the Bill provides for this.

The Bill provides for the PPF and FAS to 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.

Finally, the ability of the PPF and FAS to make terminal illness payments is extended through the Bill. The Private Member’s Bill covering similar ground has now been withdrawn.