Government unveils Bill and roadmap to implement its vision for UK pensions

The government has set out its vision for bigger, better and less fragmented DC workplace pensions. It has also announced plans to create new options for DB schemes and sponsors, including giving them greater flexibility over returning surpluses to employers and members and paving the way for more commercial DB superfunds. The introduction of the Pension Schemes Bill will enable the government to implement its vision for workplace pensions and fulfil the commitments it has made.

Additionally, in a surprise announcement, the government has also confirmed it plans to introduce a legislative solution to the problems arising from the Virgin Media judgments on the need for actuarial confirmation where amendments were historically made to contracted-out salary related schemes. We are expecting the details of this to be set out in separate regulations.

What’s in the Bill?

As expected, the Bill contains measures which, if implemented, will:

• facilitate the return of surplus to employers and members from ongoing DB schemes
• introduce new scale and asset allocation requirements for DC master trusts and workplace pension providers
• require trustees of DC schemes to offer one or more default decumulation options for their members
• introduce a mechanism to allow for the automatic consolidation of small deferred pension pots, and
• introduce the new value for money framework for DC workplace pension schemes

Alongside the Bill, the government has published a roadmap which sets out the timing and phasing of the numerous reforms. Some may be disappointed about how long some of the reforms will take given their importance in introducing greater flexibility for DB schemes and facilitating the government’s scale and consolidation agenda for workplace DC schemes by 2030.

The Bill’s introduction marks the start of its passage through Parliament and so there is still scope for changes to be made to its contents. However, trustees, employers and providers should take stock and consider how the myriad of reforms will impact their scheme and business.

We have summarised the key measures below and will be issuing further analysis on specific aspects of the Bill in the coming weeks.

Register for our webinar, where we will be examining the key elements of the Bill and what they mean for pension schemes, providers and employers in our webinar on 18 June 2025, 12:00 PM – 1:00 PM.

Register here

Return of surplus – more flexibility but not before 2027

The government has previously announced that it plans to provide more flexibility over the return of surplus to employers from DB schemes. In particular, it has confirmed it is minded to facilitate surplus being repaid to an employer out of an ongoing scheme where the scheme is fully funded on a low dependency basis. This contrasts with the current rules which require a scheme to be fully funded on a buy-out basis.

To help facilitate this, the Bill will:

• introduce a statutory power for trustees to modify their scheme rules by resolution to provide for surplus sharing with employers, where their scheme rules do not currently permit this
• amend section 37 of the Pensions Act 1995 (which sets out the current conditions that must be met for surplus to be paid to an employer from an ongoing scheme) to modify these – this includes removing the current statutory requirement for any return of surplus to be “in the interests of members”, and
• repeal the requirement for trustees to have passed a resolution under section 251 of the Pensions Act 2004 before 6 April 2016 for them to be able to share surplus with an employer while their scheme is ongoing 

Full details of the conditions that will need to be met going forwards before surplus can be paid out of an ongoing DB scheme will be set out in a future set of regulations on which the government will consult separately. We understand this will include measures to clarify that trustees must act in accordance with their overarching duties to scheme beneficiaries, which will remain unchanged. Importantly, repayment of surplus will also continue to be subject to trustee agreement and to actuarial confirmation of a scheme’s funding adequacy.

As well as making it easier to return surplus to employers, the government has indicated it is considering introducing a mechanism to allow lump sum payments to members out of surplus to be treated as authorised payments for tax purposes. However, any such change would need to be made via a Finance Bill or regulations made under the Finance Act 2004.

The government also announced yesterday it does not anticipate these changes to come into force before the end of 2027. This is likely to disappoint some employers who may have been hoping to take advantage of this new flexibility more quickly.

Once implemented, the Pensions Regulator will publish guidance for trustees to help them with decisions on the return of surplus.

For more on the government’s proposals regarding the return of surplus read our recent speedbrief.

Section 37 solution

In a surprise move, the government announced yesterday it will legislate to address the difficulties arising from the judgments in Virgin Media Limited v NTL Pension Trustees Limited, regarding the need for actuarial confirmation where changes were historically made to the rules of a contracted-out salary related scheme.

The legislation will give affected schemes the ability to retrospectively obtain written actuarial confirmation that historic benefit changes met the necessary standards. This will come as a welcome relief to the many DB schemes and sponsors grappling with these issues. However, the relevant legislation is not included in the Bill. Given its nature, this will be set out in separate regulations.

Once those regulations are published the scope and terms of the proposed solution will need to be considered carefully to check how it will work in practice and whether it can be used to address all of the issues arising from these judgments. Thought may also still need to be given to which historic amendments will require actuarial confirmation under the legislative solution.

DC scale and asset allocation requirements

The government has made clear it wants to see fewer, bigger DC workplace pension schemes to deliver better value for members and open up more investment opportunities. To deliver these so-called DC “megafunds” the government will require commercial DC providers and master trusts to have a “main scale default arrangement” of at least £25 billion by 2030. The Bill confirms schemes and providers will be able to aggregate the value of assets held in funds managed under a common investment strategy when assessing whether this requirement is met. What is meant by a “common investment strategy” in this context will be set out in regulations.

For those sub-scale, there will be a transition pathway; schemes will need to apply for entry in 2029, show at least £10 billion of assets under management (AUM) in their main scale default arrangement by 2030 and provide a credible plan to reach £25 billion in AUM by 2035. There will also be a new entrant pathway to enable new, innovative products that meet prescribed conditions to be brought to market.

In an unexpected move, the quality requirements for an auto-enrolment scheme will be modified to include both a “scale requirement” and an “asset allocation requirement”. The scale test reflects the AUM thresholds referred to above while the relevant regulator will only be able to approve a master trust or group personal pension plan to continue to operate as an auto-enrolment scheme if it determines the scheme or plan has a prescribed percentage of “qualifying assets” in its default funds – in short, productive finance assets (e.g. private equity, private debt, venture capital, property) which may include assets located in the UK.

In effect, it appears the regulators will be given significant flexibility and autonomy to approve or otherwise an auto-enrolment scheme based on its asset allocation and investment strategy. 

It is unclear how this fits with the government’s statement in Chapter 3 of last week’s final report of the Pensions Investment Review in which it said that it planned to include a “reserve power” in the Bill to set quantitative asset allocation targets but that it did not intend to exercise it at this time. This is something on which we will be seeking clarification.

The Bill makes clear that DC master trusts and group personal pension plans that don’t meet these requirements will no longer be able to be used as an employer’s auto-enrolment scheme. This may impact the business plans and models of some existing providers and it may force some employers to change their auto-enrolment scheme or provider.

For more insight and commentary on these measures read our recent speedbrief and our summer edition of DC Practical Notes.

Guided retirement

We have known for some time that the government plans to introduce a requirement for the trustees of DC occupational pension schemes and master trusts to put in place one or more default decumulation options for their members. The Bill includes measures to implement this which indicate that schemes will be required to put in place a “default pension benefit solution” which provides a regular income for the eligible members concerned in their retirement.

Schemes will be able to provide this decumulation option themselves or by transferring members to a different scheme or arrangement at retirement. When determining what default solution the scheme should make available (generally or to a particular subset of members), trustees will be required to take account of (among other things) the needs and interests of the scheme’s membership as a whole and any subset of the scheme’s membership that the trustees consider appropriate.

The government has indicated these requirements will be phased in, starting with master trusts in 2027. Similar requirements will be introduced for group personal pension schemes by the Financial Conduct Authority.

Small pots solution

The Bill contains provisions that will implement the government’s solution to address the growing number of small deferred pension pots under workplace DC schemes. The government confirmed how it sees this solution working in the recent Small Pots Delivery Group report.

In short, the solution will mean auto-enrolment schemes will be required to automatically transfer small deferred pension pots worth £1,000 or less to an authorised small pots consolidator. The Bill makes provision for a small pots data platform to be established to facilitate these automatic transfers. An industry-led feasibility review is underway which is considering the role and remit of that platform. This is due to report to the government later this month, with the government currently hoping to implement its small pots solution in around 2030.

You can read more about this proposed solution in our speedbrief.

Value for money

The Bill contains provisions which will enable the government to implement the new value for money framework for occupational DC schemes. The government anticipates this will be implemented in 2028 with the first regulatory assessments expected to take place during the course of that year.

The FCA is due to introduce its own rules to extend the framework to group personal pension plans.

Other measures

Alongside these reforms the Bill contains a number of other important measures, including provisions to:

• give the Board of the Pension Protection Fund (PPF) more flexibility over the levy it collects each year – it is hoped this will be sufficient to enable the PPF to reduce the levy for 2025/26 to zero
• put the authorisation and supervision regime for DB superfunds onto a statutory footing, and
• enable the Pensions Ombudsman to make enforceable determinations in pensions overpayment cases without requiring a county court order – which should speed up the resolution of these cases

Next steps

The Bill will now make its way through Parliament and it is not expected to receive Royal Assent until next year. Most of the major reforms will also require secondary legislation which will be subject to separate consultation, so it will be some time before any of these are implemented as shown in the government’s roadmap.

Webinar

The volume of changes contained in the Bill means it will take some time to digest. We will be publishing further analysis on specific aspects of the Bill over the coming weeks. In the meantime, register for our webinar on 18 June to get up to speed with the most significant changes and what they mean for your scheme or business.

Register here