A more joined-up pension system
One of the most widely welcomed changes in the Bill is a new system for consolidating small pension pots. As people move jobs, they often leave behind multiple small workplace pensions that are hard to manage and easy to forget. Under the new proposals, pots worth £1,000 or less will be automatically combined into schemes certified as offering good value, making it easier for savers to see their overall pension picture and reduce unnecessary administrative costs.
The Bill also introduces a requirement for all defined contribution (DC) pension schemes to offer default retirement income options. These are designed to help people approaching retirement navigate the complex choices about how to turn their savings into a stable income, providing more secure and straightforward options for those unsure where to start.
Raising the bar on value
A central pillar of the legislation is the introduction of a new value-for-money framework, which will assess how well pension schemes perform in delivering returns for savers relative to the costs they charge. The aim is to prevent people from languishing in underperforming or expensive schemes without realising it, and to promote a more competitive pensions market overall.
This links closely to the Government’s broader ambitions to consolidate the pensions industry. Drawing on the recent Pension Investment Review, the Bill sets out a path to create more large-scale pension funds, or ‘megafunds,’ by requiring multi-employer DC schemes and Local Government Pension Scheme (LGPS) pools to reach at least £25bn in assets under management by 2030 or be on course to meet that threshold by 2035.
This move is intended to drive down costs and increase investment capacity, making it easier for these funds to invest in higher growth opportunities such as UK infrastructure, housing and clean energy – a strategy designed to benefit both pension savers and the wider economy.
Unlocking defined benefit surpluses
The Bill also addresses the large surpluses held in many closed defined benefit (DB) pension schemes. Currently estimated at around £160bn across the system, these surpluses are often locked away. The new rules will give trustees greater flexibility to access excess funds, provided member benefits are fully secured. This could unlock significant capital to be reinvested across the UK economy or used to improve benefits for scheme members.
Stronger institutions, fairer outcomes
Alongside these changes, the Bill tackles several technical but important issues. It will remove restrictions that currently stop the Pension Protection Fund (PPF) from lowering its annual levy when it is not needed, potentially reducing costs for employers. It also proposes re-establishing the legal authority of The Pensions Ombudsman to make binding decisions in overpayment recoupment cases without needing a County Court order, making it easier to resolve disputes.
Other measures include a change to the legal definition of terminal illness within the PPF and Financial Assistance Scheme, allowing seriously ill pension scheme members to access payments earlier.
Chancellor Rachel Reeves called the Bill a “game changer, delivering bigger pension pots for savers and driving £50bn of investment directly into the UK economy.” Her view was echoed by Pensions Minister Torsten Bell, who said, “Workers deserve to get better bang for each buck saved, and these sweeping reforms will make sure they do. Pension saving is a long game, but getting this right is urgent so that millions can look forward to a higher income in retirement.”
What happens next?
The Bill must now progress through Parliament, a process that could take several months as its provisions are debated and potentially amended. If passed into law, it will mark one of the most significant shifts in UK pensions policy in recent decades.
Commenting on the Pension Schemes Bill, Luke Carter, Regulatory Consultant at Equiniti said:
While many of the reforms will take time to implement, the direction of travel is clear, the UK is moving towards delivering a pension system that is simpler, more consolidated and more focused on delivering good outcomes for savers, and that’s a good thing for the pension industry, and the UK as a whole.”
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