The Pensions Bill, laid before Parliament on 5 June 2025 is likely to become law in 2026. It looks to introduce reforms aiming to improve the sustainability and governance of pension schemes in the UK as well as ‘boosting’ the UK economy. Here are some highlights:
Surplus in Defined Benefit (DB) pension schemes
The bill introduces a statutory resolution power for trustees to modify scheme rules for surplus extraction, clarifying the legal framework and trustee duties. Crucially, trustee agreement will continue to be necessary. We believe this is only likely to be economically viable for larger schemes (over c£500m in assets).
Pension Protection Fund (PPF) levy
Restrictions preventing the PPF from reducing the annual levy when not required are removed. This change allows the PPF to adjust the levy based on actual needs, providing more flexibility. We welcome this change as it will allow for a nil levy in future years – starting in 2025 – if the PPF funding remains strong.
Value for money framework
The bill establishes a long-awaited value for money (VFM) framework for Defined Contribution (DC) pension schemes, setting the stage for regulations that will aim to ensure pension schemes continue to deliver good value to their members.
This builds on the existing VFM framework for DC schemes and will include a requirement to introduce processes for the automatic transition of members into default retirement pathways as they approach their intended retirement age.
Small pots consolidation
To address the issue of there being an increasing number of small, dormant pension pots, the bill facilitates the automatic consolidation of DC pots under £1,000 when a member changes employment.
The design will be for an “opt-out” process, rather than and “opt-in”, with the default position being that the “pot follows member” for those who fail to respond. This has been in planning for a number of years and may well be several more years before it goes live.
Additional provisions
The bill also includes miscellaneous provisions to tidy up inconsistencies and address specific issues, such as the legal standing of the Pensions Ombudsman and the retrospective actuarial confirmation of historic benefit changes.
If this puts to bed the Virgin media case it will be very well received and we think this is a positive step to avoid unnecessary costs for sponsors and take away a distraction for trustees of contracted-out DB schemes.
Master trust DC schemes
Further consolidation of master trusts is likely as the bill mandates that the default investment funds of multi-employer DC schemes must manage at least £25 billion in assets by 2030.
A new condition also requires authorised master trusts and group personal pension providers to meet an “asset allocation requirement”. This looks like it will allow the Government to mandate investment in private equity assets, including infrastructure and property, with the aim to boost the UK economy.
MHM view
For the DB pensions market, the immediate reduction (to zero) of PPF levies and the government’s intervention on Virgin Media are both good news stories. This decisive action is to be welcomed but one can’t help but wonder if the government could have done something similar in relation to GMP equalisation a few years ago.
Further consolidation of DC master trusts seems inevitable, which may not be a bad thing but will need employers to communicate changes with employees. And, for those companies still managing their own trust-based DC scheme, the additional VFM requirements may represent another nail in the coffin of many smaller schemes.
To discuss any issues facing your pension schemes, please get in touch with Andrew Scopes by email to andrew.scopes@sandccarsalesharrogate.co.uk or call 01423 229029.