Pension Schemes Bill - Where are we now?

The Pension Schemes Bill is nearing the end of its passage through the House of Commons, after which it will move to the House of Lords. A number of important amendments have recently been made to the DC and DB reforms contained in the Bill. This includes changes to the scale and asset allocation requirements, updates to the new rules on guided retirement and the introduction of new powers to reduce the number of default investment funds that schemes operate. The government has also introduced a legal fix to address the issues arising from the judgments in Virgin Media and clarified the new rules on return of surplus. However, this is not the end of the road and we expect further amendments, including an amendment to abolish the PPF Administration levy which the government has promised in response to industry pressure.

DC reforms

The Pension Schemes Bill contains a number of reforms to implement the government’s vision for the future of defined contribution (DC) workplace pension schemes. Most notably, the Bill will drive consolidation and lead to the creation of DC “mega-funds” by requiring:

• authorised master trusts and providers of group personal pension plans (GPP) to meet new scale requirements
• all DC workplace pension schemes to provide members with access to tailored retirement solutions, and
• most dormant pension pots worth £1,000 or less to be transferred to one of the new authorised small pots consolidators

The Bill will also pave the way for the introduction of the new value for money framework and introduce the government’s ‘reserve power’, designed to ensure schemes invest more in UK productive assets.

We have covered these reforms previously. However, some important amendments have been made to ensure they operate as intended. This includes:

• amendments to the scale requirements to make clear that a GPP provider can combine the assets in the default funds of its GPPs with those in the default funds of one or more master trusts, so long as the GPP provider and the scheme funder or scheme strategist are the same entity. While this is helpful, the amendment only applies where a provider operates a GPP and, as things stand, the legislation would not allow a provider which operates two or more master trusts (but no GPP) to combine assets in the same way. We presume this difference in treatment is not intended. The way the legislation now works might also require unnecessary restructuring in some cases, to ensure that the same group entity is the GPP provider and the scheme funder or scheme strategist of a related master trust
• changes to the commencement provisions which would enable the transition pathway for sub-scale master trusts and GPPs to open before 2030 – it is important this pathway is opened quickly to reduce uncertainty, encourage providers to invest in their business and address the impact these proposals are already having on the workplace pensions market – please see our DC Practical Notes article for further detail. However, despite this change, it is still unclear when the pathway will be available
• changes to the new entrant pathway for sub-scale master trusts and GPPs to make clear that this route is only available for schemes without any members at the point the scale requirements come into force in 2030 – in practice, this will have the effect of closing the DC workplace market to new entrants from now until 2030. Any new entrants must show strong potential to grow and an innovative product design
• changes to the asset allocation requirement to de-couple its introduction from the introduction of the scale requirements – this is designed to ensure the asset allocation requirement is a ‘reserve power’ as stated. However, we do not think the amendments currently go far enough to achieve this (the asset allocation requirement is still a condition of regulatory approval for a main scale default arrangement) and we will be going back to the DWP on this. In addition, we note the asset allocation requirements apply to the default funds of the “scheme” rather than the “main scale default arrangement” – this means that if the reserve power were introduced, a provider would need to consider the asset allocation requirements at scheme-level (i.e. GPP/master trust level) even if their main scale default arrangement covers multiple schemes, and
• amendments to the guided retirement reforms to make clear that the provision of information requirements and information gathering powers for trustees apply where a scheme provides a guided retirement solution via a partnership arrangement as well as where a default retirement solution is provided in-scheme. In our view, this change widens the scope of guided retirement considerably for schemes looking to utilise a partnership arrangement. The government has also introduced a power to enable it to require one or more master trusts to act as a provider of last resort for any schemes that are unable to find a suitable partnership arrangement

In an attempt to reduce the number of non-scale default funds operated by schemes, the government has also introduced new powers to enable the Secretary of State to make regulations which would:

• prevent schemes from creating new non-scale default arrangements without regulatory approval, and
• give the Pensions Regulator and the FCA power to require a master trust or GPP to consolidate one or more non-scale default arrangements that it operates into an approved main scale default arrangement operated by it

The Bill also now includes a regulation making power which can be used to require employers to provide information relating to their workers to the trustees or provider of their auto-enrolment scheme. We presume this might be used to require employers to help with member engagement and facilitate the flow of information to providers and trustees in designing and making available default retirement solutions for members.

DB reforms

One of the most high-profile amendments made to the Bill to date is the introduction of a legal fix to address the issues arising from the judgments in Virgin Media. This is a very welcome development and we have considered what it means for defined benefit (DB) schemes affected by the Virgin Media judgments in a recent speedbrief.

Alongside this, the government has also amended the return of surplus provisions to ensure the power to amend scheme rules can be used where a power to make a payment to an employer does not currently exist while the scheme is ongoing, including if such a power exists where the scheme is being wound-up.

There is more good news for DB schemes in receipt of invoices for the PPF Administration levy this year, without notice after a two-year pause. We have supported the Society of Pension Professionals to draft an amendment to the Bill to abolish the Administration levy, which was tabled by Liberal Democrat MP, Steve Darling. 
Although the amendment has not yet made its way into the Bill, Pensions Minister, Torsten Bell, has given a public commitment to amend the Bill at a later stage to abolish the levy, saying:

“I acknowledge the concerns surrounding the abolition of the Pension Protection Fund admin levy. This is not a new issue; it has obviously been raised significantly by parts of the industry. I broadly support the intent of the new clause… I give the hon. Member our assurance that we intend to lay amendments at a later stage that will achieve the same aim.”

This will not remove the need for schemes to pay the Administration levy this year, but it should mean that the levy will not be charged going forwards. To the extent any administration costs of the PPF or the Fraud Compensation Fund (FCF) need to be covered going forward, these should be met out of the PPF general funds (supplemented, to the extent necessary, by the PPF levy) or through the FCF levy, which is spread across DB and DC schemes.

What next?

The Bill now moves to the Report stage in the House of Commons. This provides MPs with an opportunity to consider the changes that have been made at the Committee stage. It also allows them to put forward further amendments. The third reading usually takes place straight after the Report stage. The Bill will then move to the House of Lords for further consideration and debate.

As things stand, the Bill is still on track to receive Royal Assent in Spring 2026. However, there are still issues that we hope will be ironed out before the legislation is finalised.

You can keep track of the current state of play with the reforms covered in this briefing and material amendments to the Bill on our UK Pensions Tracker.

Please reach out to one of our DC or DB specialists to discuss any of the reforms covered in this briefing.