Government outlines significant changes in pensions value, consolidation and UK investment in three publications

The aims of the Pensions Investment Review, launched in July 2024, were to tackle fragmentation, boost investment, increase saver returns and address waste in the pensions system. 

On May 29, 2025, the Government published three major papers setting out its policy on extensive pensions reforms: 

• The Final Report from the Pensions Investment Review updates findings presented in the Interim Report published in November 2024. 

• Two consultation responses on Options for DB schemes and Unlocking the UK Pensions Market for Growth. 

The key points in these papers are summarised below and the main facilitative provisions to implement the new proposals have been introduced by the Pension Schemes Bill which was issued on June 5, 2025 (please look out for our upcoming briefing which will explore the Pension Schemes Bill proposals and anticipated timelines in detail).

Scale and consolidation

The Government’s intention to reduce the number of DC default arrangements is to be implemented by provisions in the Pension Schemes Bill and subsequent regulations following consultation.

The Government’s intends to reduce the number of DC default arrangements and whilst there will be no limit on the number of default funds DC providers and master trusts can operate, they must have a “main scale default arrangement” (or “megafund”) of at least £25bn in assets under management (AUM) by 2030.

Smaller DC providers will be helped to reach the £25bn target via a “transition pathway”. These schemes will be able to apply for entry in 2029, showing AUM of at least £10bn by 2030 and have in place a plan to reach £25bn in AUM by 2035. In accordance with the Government’s aim to support larger schemes, the creation of new default arrangements will be possible only if approved. A “new entrant” pathway will be introduced allowing new market entrants to seek authorisation.

Exemptions from the size requirements

The minimum size requirements will not apply to “single-employer” trust schemes (those with employees within a corporate group), to hybrid schemes linked to DB funds, industry-wide schemes or default funds designed around specific religious beliefs, such Sharia compliant funds.

Contractual override for contract-based scheme consolidation

There is currently no cost-effective way for DC providers to vary contracts or to transfer savers from a contract-based arrangement without individual consent. The Government’s intention is to level the playing field with trust-based schemes, where bulk transfers without individual consent are already allowed. As part of the drive to reduce historic fragmentation and to allow the consolidation of older legacy products into newer, better value arrangements, the Pension Schemes Bill includes an override to facilitate consolidation for the contract-based market.

The Pension Schemes Bill also includes provisions encouraging emphasis on the Value for Money (VfM) framework rather than having schemes and savers focus on DC costs and charges. The new framework will allow savers to compare their scheme’s performance across a wide set of data metrics to assess its value. There was a suggestion in the consultation that employers and advisers should have a duty to consider value when selecting a scheme but this is not pursued in legislation.

DC scheme value

The Pension Schemes Bill also includes provisions encouraging emphasis on the Value for Money (VfM) framework rather than having schemes and savers focus on DC costs and charges. The new framework will allow savers to compare their scheme’s performance across a wide set of data metrics to assess its value. There was a suggestion in the consultation that employers and advisers should have a duty to consider value when selecting a scheme but this is not pursued in legislation.

Pension fund investment in the UK

The Mansion House accord has been adopted by 17 signatories who have voluntarily committed to investing 10 per cent of their main default funds in private equities, with five per cent of this in the UK. There remains a possibility of the Government mandating a specific level of UK investment, although currently there are no plans to legislate to this end if the industry reaches the five per cent UK investment goal on its own. However, the Pension Schemes Bill will introduce a time limited reserve power (until 2035) enabling the Government to set “quantitative baseline targets” for schemes to invest in a broad range of private assets, including those in the UK.

Options for DB schemes

Surplus

The Government’s intention is to remove barriers to DB surplus extraction subject to “stringent funding safeguards”. The proposals, when implemented (likely by 2027) represent a fundamental overhaul of the existing regime for return of surplus from an ongoing scheme and include:

• Allowing trustees to amend their scheme by resolution to facilitate surplus returns to employers.
• Changing the funding threshold above which a return of surplus can be considered from the current solvency funding basis to the low-dependency basis.
• Replacing the requirement for trustees to be satisfied that a return of surplus to employers is in the ‘interests of members’ with an obligation for trustees to instead be satisfied that any surplus repayments are “in accordance with their “overarching duties to scheme beneficiaries”.

Detailed regulatory guidance on the new proposals will be published to assist trustees in considering the new framework.

Public consolidator

The consultation explored the possibility of a Government consolidator for small DB schemes run by the PPF. Although provision of a Government-sponsored consolidator is not imminent, options for a “small focused” consolidator run by the PPF may be developed in due course for “small but well-funded” schemes” unable to easily access the buy-out market.

Next steps

Focus is now on the Pension Schemes Bill, and regulations which will follow. Consultations on the future secondary legislation will be required to flesh out the details of the major changes set out above, and the Pensions Minister has published a “roadmap” as further guidance through these significant reforms. 

The next instalment of the Pensions Review, which will focus on retirement adequacy and outcomes, is due “in the coming months”.