Following an extended period of ping-pong between the House of Commons and the House of Lords, the Pension Schemes Bill has finally received Royal Assent to become the Pension Schemes Act 2026.
The Act represents a significant package of reforms to the UK pensions system. Many of the changes will be welcomed by trustees and employers, particularly the provisions giving schemes affected by the Virgin Media decision the ability retrospectively to obtain actuarial confirmation. Provisions making it easier for trustees of defined benefit (DB) schemes to release surplus back to employers and members will also present new opportunities for schemes and employers to explore.
However, the reforms will also bring challenges for some schemes, particularly DC schemes faced with a raft of changes including new value for money, guided retirement and small pots requirements. Meanwhile, DC master trusts will now need to focus their attention on growth and consolidation, as well as the possibility of mandated asset allocation in the future.
What are the key measures included in the Pension Schemes Act 2026?
For DB schemes, the key provisions include the following:
- Virgin Media: the legislative fix enables scheme actuaries to provide retrospective confirmations for most amendments where Section 37 confirmations are missing or absent, subject to some limited exceptions. These provisions came into force immediately. Schemes now need to work with the scheme actuary to put in place a plan for obtaining any necessary retrospective actuarial confirmations.
- Surpluses: changes will make it easier for trustees of DB schemes to release surplus back to employers and members. Trustees will be given an overriding statutory power to make such payments and the funding threshold needed before a payment can be made is expected to be lowered.
- Superfunds: a legislative framework for DB superfunds is included. This will replace the Pensions Regulator’s current interim approach to regulating superfunds.
- Pension Protection Fund (PPF) and Financial Assistance Scheme (FAS): the definition of “terminal illness” for the purposes of the PPF and FAS is being extended. CPI-linked increases, capped at 2.5% a year, will also be introduced on pre-1997 pension accruals for members of the PPF and FAS where their original schemes provided this benefit.
- PPF levy: restrictions that previously prevented the PPF from reducing the PPF levy will be removed.
- Pensions Ombudsman: the legal standing of the Pensions Ombudsman to act as a competent court in overpayment cases will be re-established.
For DC schemes, the key provisions include the following:
- Scale: master trusts and group personal pension schemes (GPPs) will need to meet a new scale requirement. In a nutshell, these schemes will need to have at least £25bn of assets in their main default arrangement by 2030, unless they are exempt from the requirement, or they qualify for either a transition or new entrant pathway.
- Asset allocation: the Act includes the highly contentious asset allocation mandation power, although this was subject to substantial amendments during the final stages of the Bill’s passage through Parliament. Described as “mandation-lite”, the Government has the power to introduce regulations requiring master trusts and GPPs to invest in line with the Mansion House Accord (i.e. 10% of default funds invested in private markets, with 5% allocated to UK businesses), although the power cannot be exercised before 1 January 2028 and is subject to a range of safeguards.
- Small pots: a legislative framework for master trusts to be authorised to act as consolidator schemes for small DC pots is included. A new consolidation process will provide for small pots worth £1,000 or less and where no contributions have been paid for at least 12 months to be consolidated into those schemes.
- Value for money: a value for money framework for DC schemes is included. The framework will require trustees to measure and publicly disclose investment performance, costs and service quality, using metrics which aim to assess value for money (VFM). This will allow for performance to be compared against the market on a consistent basis. Trustees will be required to take specified actions where the scheme is assessed as not delivering VFM (including closing them to new business and moving members to better performing schemes).
- Guided retirement: trustees of DC schemes will be required to design and make available one or more “default pension benefit solutions”. These solutions must deliver DC benefits to scheme members by providing them with a regular income in retirement. If trustees determine that it is not reasonably practicable to provide a default pension benefit solution for some (or all) members, they must identify a scheme that is able to (and agrees) to make a pension benefit solution available to those members.
What is not included in the Act?
The Government sought to include a provision that would have allowed it to develop statutory guidance on trustees' investment duties. This was intended to provide practical support to trustees about how to comply with their existing duties in considering factors such as system-level considerations, impacts on members' standards of living, and the views of members. This provision was rejected by the House of Lords and is not included in the final Act. The Government has, however, said it is reviewing next steps to ensure this objective continues to be progressed.
When will the Act come into force?
With the exception of the Virgin Media legislative fix, which came into force immediately, most of the measures are expected to come into force in the period from 2027 to 2030. We are expecting the Government to publish an updated roadmap setting out the proposed timings for the various measures in due course.
In the meantime, we can expect a busy period of reviewing and responding to consultations on the many sets of regulations that will be needed to flesh out the details.
For more information, please speak to your usual Linklaters contact.