After going through an intense parliamentary ‘ping pong’ stage, primarily focused on agreeing the extent of the Government’s powers in relation to the defined contribution (DC) reserve investment mandation power, the Pension Schemes Bill (Act) received Royal Assent on 29 April 2026.
Described by the Government as both ‘landmark’ and ‘historic’, the Act introduces a wide ranging series of reforms across both the DC and defined benefit (DB) pensions sectors. However, much of the detail will follow in secondary legislation and regulatory guidance.
Key DC changes
Scale and asset allocation: £25bn+ megafunds on the way
The Act brings in far-reaching changes to DC provision designed to consolidate the market, with a focus on driving value for savers and, the Government hopes, increased investment in productive finance.
The headline change is a requirement for multi-employer DC auto-enrolment master trusts and group personal pension schemes to have at least one ‘main scale default arrangement’ with a minimum of £25bn of ‘qualifying assets’ held under a common investment strategy by 2030. There will be:
- Certain exemptions to be set out in regulations, for example, hybrid schemes and defaults relating to a protected characteristic;
- A ‘transition’ pathway for schemes with at least £10bn in qualifying assets by 2030 to continue if they can demonstrate they have a credible plan to reach £25bn by 2035; and
- A ‘new entrant’ pathway for new schemes that cannot satisfy the scale requirements to be approved if, among other things, they can demonstrate strong potential for growth and have an innovative product design.
Scale and asset allocation: government’s reserve investment mandation power
The most debated of the provisions was the clause allowing the Government to make regulations on the percentage and type of qualifying assets that these megafunds should hold (the so-called investment mandation power). This regulation-making mandation power was rejected by the Lords on several occasions due to concerns regarding the potential intrusion into trustees’ fiduciary investment duties. However, notwithstanding residual concerns that the “mandation power is wrong in principle”, the Lords were ultimately prepared to accept its retention following a series of Government concessions. These changes culminated in the clause being framed so as to include the following:
- Clarification of what counts as qualifying assets. These will need to be holdings in one or more of the following six asset classes – private equity, venture capital, private credit, interests in land, infrastructure, and other classes of ‘unlisted equity securities’ – regulations must provide descriptions of each class;
- Asset allocation limits (no more than 10% of the default fund value being held in qualifying assets and 5% (by value) in UK-specific assets);
- Time restrictions so that the regulation-making power can only be exercised once, at the earliest on 1 January 2028 and fall away at the end of 2032 if unused, and in any event, will be repealed by the end of 2035; and
- A non-compliance mechanism under which a scheme need not comply where the applicant believes that doing so is “likely not to be in the best interests of members” rather than the earlier suggested “would be likely to” cause material financial detriment test. The Financial Conduct Authority (FCA)/ the Pensions Regulator (TPR) need only be satisfied that it was reasonable for the applicant to reach this view, rather than having to come to this opinion itself.
As well as the ‘member interests’ concession, the Government also ended up making one other late-stage refinement to obtain the Lords’ agreement – changes to the Government report that is required before the reserve investment power can be used. There is now a requirement for the Secretary of State to have regard to a FCA and TPR assessment of “the extent to which there is evidence of competitive conditions restricting” applicable schemes from investing in qualifying assets and for the Secretary of State to assess progress made towards the qualifying asset 10% and 5% limits and barriers to such progress before using the reserve power.
Other DC changes
Other DC changes being introduced by the Act include:
- a new standardised Value for Money framework for trust-based DC schemes to evidence they provide value and supporting a shift away from a focus on cost towards overall value;
- a ‘guided retirement’ duty for trustees of occupational DC schemes to set up one or more ‘default pension benefit solutions’ to guide members on how their benefits can provide a regular income in retirement or transfer relevant members to a scheme that does provide such an offering if either it is not reasonably practicable to do so themselves or if another scheme can provide a better member outcome; and
- regulation-enabling provisions to facilitate the transfer of small (£1,000 or less) dormant (no contributions and investment activity in the last 12 months or longer) DC pension pots by auto-enrolment schemes into a consolidator arrangement.
Key DB changes
The DB changes in the Act are not as wide-reaching as the DC-related ones, albeit they address some key issues that DB schemes have recently been dealing with. They include the following:
- Refund of ongoing surplus to employer flexibility: a statutory resolution power to allow ongoing schemes without an existing power to pay surplus to the employer to modify the scheme to do so and for those with an existing power to amend any restrictions on the power.
- Recouping overpayments where member disputes amount: changes coming into force two months after Royal Assent to section 91 of the Pensions Act 1995 provisions require an enforcing court order where a member disputes the amount of a charge, lien or set-off made against their benefits. Trustees will also be permitted to exercise such a power where they have either a Pensions Ombudsman determination as to the amount of the monetary obligation or the dispute is resolved. This means trustees will no longer have to get an enforcing County Court order following an Ombudsman determination that they can recoup a disputing member’s benefits.
- Virgin Media legislative remedy: legislative remedy provisions addressing the issues arising from the Court of Appeal’s ruling in the July 2024 Virgin Media Ltd v NTL Pension Trustees II Ltd case providing relevant DB contracted-out schemes with the ability to retrospectively validate ‘potentially remediable alterations’. These provisions came into force on Royal Assent so are now in effect and trustees can start to formulate a project plan for a remedial exercise if they have not done so already. The Pensions Regulator’s March 2026 guidance for trustees on how they should approach the remedy can be accessed here.
- Superfunds: the legislative framework for the authorisation and supervision of commercial superfunds.
- Pension Protection Fund (PPF) levy flexibility: the Act allows the PPF to reduce the levy down to zero and subsequently increase it again in a reasonable timescale. The PPF was sufficiently comfortable that the provisions would be enacted and therefore reduced the levy to zero before the Bill received Royal Assent.
- Pre-97 increases to PPF and Financial Assistance Scheme compensation: PPF and Financial Assistance Scheme compensation relating to pre-6 April 1997 pensionable service to be increased where the scheme provided for such increases.
Public sector pensions
The Act makes asset pooling, improved governance, and investment changes to the Local Government Pension Scheme (LGPS). It also introduces a more limited public sector provision than the wide-ranging sustainability review that was originally proposed by the Lords. The Government’s accepted alternative is a requirement for the Government Actuary to publish 50 year cashflow projections for certain defined benefit public service schemes (not the LGPS) within 12 months of the relevant provisions coming into force.
What happens next?
Although Royal Assent represents a significant milestone, many of the reforms are in skeleton form only, with the detail to be set out in secondary legislation and developed through consultation. This will keep the pensions industry busy in 2026 and beyond. With regards to timescales, the Government’s roadmap sets out the sequencing and timing of consultations and regulations; this will need to be updated and a revised version is expected to be available shortly.