Pension Schemes Bill: something for everyone?

The government has published its much-heralded Pension Schemes Bill. There are no real surprises, but the proposed suite of reforms - which runs to over a hundred pages - will undoubtedly affect a broad swathe of pension schemes over the next few years. Whether DB or DC, master trust or superfund, trust-based or contract-based - the Bill seems to have something for everyone.

• Surplus: as set out in our recent Law-Now, a resolution-making power will let DB scheme trustees modify their rules to permit payment of surplus to an employer, or to remove or relax restrictions in an existing power. Return of surplus will remain subject to trustee discretion and actuarial certification (and continue to attract tax at 25%). Regulations will outline the funding threshold and additional payment conditions, with the new law and supporting TPR guidance expected to be in force by the end of 2027.
• Value for money (VfM): the FCA has already consulted on disclosing VfM in default funds for contract-based schemes. The Bill now provides a framework for equivalent regulations for trust-based DC schemes. Schemes not meeting the necessary VfM rating could be forced by TPR to close and transfer assets and liabilities to another scheme. The regulation-making process is to take place in 2026-27 with the first VfM assessments and publication of VfM data anticipated from 2028.
• DC scale: most DC master trusts used for automatic enrolment must have at least one default arrangement with over £25bn in assets under management (AUM) by 2030. There will be a transition pathway for smaller schemes (with at least £10bn AUM in 2030) and a separate ‘innovation pathway’ for new market entrants. To further encourage consolidation, the Bill introduces an option for without-consent bulk transfer from contract-based schemes, where appropriate safeguards are met.
• DC investment: a controversial reserve power would enable the government to set quantitative baseline targets for master trust default funds to invest in specified private assets, potentially related to whether assets are located in the UK or linked to UK economic activity. This is a sunset provision which expires in 2035.
• DC decumulation: trustees of schemes offering DC benefits will have a duty to offer decumulation options to members on retirement and to enrol any member not making an active choice into the scheme’s ‘default pension benefit solution’, or to transfer them to a suitable alternative arrangement. Schemes will need to develop a ‘pension benefits strategy’ to ensure they understand the requirements of their members. After consultation on the detail the duty is slated to come into force for master trusts in 2027 and other schemes during 2028.
• Small pot consolidation: following the Small Pots Delivery Group Report, the Bill provides for automatic consolidation of certain dormant DC pots valued at £1,000 or less. The current plan is for consultation on the detail in 2027/28 with consolidators selected in 2029 and automatic consolidation starting from 2030.
• DB superfunds: the Bill provides the formal legislative structure for the design, authorisation and supervision of “superfund schemes”. The government expects to consult on regulations during 2026 and finalise the regime by 2028.
• Pension Protection Fund: the PPF is being given more flexibility to reduce the levy that pension schemes pay - potentially to zero - and new powers to provide member data to pensions dashboards. Changes are also to be made to the compensation provisions for terminally ill members. While the government is exploring options in relation to the proposal for the PPF to act as a public consolidator for some DB schemes, that framework is not dealt with in this Bill. The levy changes are anticipated to apply from April 2027.
• Local Government Pension Scheme: the Bill sets out requirements for the LGPS on asset pooling and on developing policies on local and regional investment. See our recent Law-Now.
• Recoupment of overpayments: amendments to section 91 of the Pensions Act 1995 designate the Pensions Ombudsman as a “competent court”. This will allow schemes to set off a disputed overpayment from future pension after an Ombudsman determination in the trustees’ favour, without the need to go to court. This TPO Update provides more background.

While the content of the Bill is much as expected, there could be further additions or changes in the months ahead, as the Bill works its way towards Royal Assent in 2026. DWP has produced a helpful roadmap setting out the sequencing of the key stages, which includes the indicative timelines below. With several consultations envisaged to flesh out these reforms and much secondary legislation to be drafted and settled to implement them, there is still plenty of detail and substance to be developed over the coming months and years.

For further information, please speak to your usual contact at CMS.

^{[Source: Department for Work and Pensions - Workplace pensions: a roadmap]}