UK Pension Schemes Bill: what you need to know

Surplus distribution

Although the King’s Speech was silent on the matter, in January 2025 the Government said that it would legislate to make it easier for surplus from DB schemes to be paid to employers or to be given to scheme members as additional benefits. We’re eagerly awaiting a response to the DB Options consultation issued by DWP in February 2024 which will hopefully confirm more detail and that relevant enabling clauses will be included in the Bill. This could include additional protection for members, for example from enhanced PPF protection. 

Public consolidator

The Government needs to decide whether to legislate for a DB public consolidator, likely to be run by the PPF.  This idea was first raised by the previous Government, but so far this Government seems less committed – saying in May 2025 that “We continue to explore whether a small, focused Government Consolidator, run by the PPF, could be an option for schemes less attractive to commercial providers”. This suggests that measures on this proposal may be unlikely in the Bill.

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 increase it again, given it is currently prevented from making annual increases of more than 25% in the levy.  This flexibility needs primary legislation and, hopefully, this will be firmed up by the time the Bill is introduced.

There have also been calls for PPF surplus to be used to provide additional compensation to existing PPF members and/or to future prospective members, such as for pre-97 increases. This would require primary legislation. However, in May 2025 such improved compensation is looking to be in doubt. This is because the Government has said that “any use of the PPF reserve and increases in future liabilities have an impact on the public finances”. However, the DWP continues to look at this issue “to ensure a balance can be struck between all parties”. This includes in relation to potentially introducing pre-97 increases for the FAS (although removing the FAS compensation cap is off the table). The Government promises to provide further detail in due course.

Finally, the King’s Speech said that the ability of the PPF and FAS to make terminal illness payments would be extended through the Bill, although since then this has been proceeding through a Private Member’s Bill.

Decumulation

We expect the Bill to contain a new duty on DC scheme trustees to offer a suite of decumulation products and services, 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.

Small pots consolidation

We expect the Bill to provide for an authorised and multiple default consolidator model, whereby certain DC pots under a specified limit will be automatically swept up into a consolidator scheme. However, it seems unlikely that all of the necessary clauses will be ready when the Bill is first introduced. Amongst other things, a feasibility review for the Small Pots Data Platform needs to be completed (expected June 2025). Regulations will also be needed.

Value for money

Whilst the framework for contract-based schemes is being finalised by the FCA, the Bill will need to contain measures to apply the framework to trust-based schemes.  The King’s Speech said that a standardised test will be introduced that trust-based DC schemes will need to meet to demonstrate they deliver value for money.

The Government intends to add provisions to the Bill as necessary, depending on the outcome of the review. We are awaiting the final report of the first phase. The second phase, which amongst other things is to address pensions adequacy, has yet to be launched.Potential actions arising from the first phase include measures to facilitate consolidation of the DC pension system and to consolidate the investment operations of the Local Government Pension Scheme.