A new Pensions Schemes Bill has been introduced, which could affect your existing pensions arrangements. The latest Bill heralds some far-ranging reforms:
1. Consolidation
The government wants to see a major shrinkage in the number of defined contribution (DC) funds into which most employer and employee contributions now flow. To achieve this, the bill requires, with limited exceptions, that the main default investment fund of multi-employer schemes have a value of at least £25 billion by 2030. That goal implies that many existing schemes will be merged to form ‘megafunds’, bringing the UK in line with Australian practice.
There are similar provisions (without the £25 billion threshold) to consolidate the default funds of contract-based schemes (e.g., group personal pensions).
2. Small pots
One of the problems created by the success of automatic enrolment in workplace pensions is that job-changers can end up with a ragbag of small pension pots, which are not cost-efficient for employees or pension providers. The Bill gives the government the power to consolidate small DC pension pots of up to £1,000 into a single scheme certified to offer good value. However, full implementation is unlikely until after 2030, once the megafunds market is established.
3. Investment in private assets
One of the justifications for the creation of megafunds is that their size will permit investment in a wider range of assets, including specialist private markets such as venture capital, infrastructure, property and private credit. These are all areas where the government wants to stimulate UK investment but lacks the finances to do so directly. The Bill gives the government a reserve power to require megafunds to invest a minimum amount in these specialist areas. Background papers show the minimum is currently planned to be 10%, of which at least half must be in the UK.
The proposed Pension Schemes Bill will be subject to much debate and is expected to receive Royal Assent in 2026. Many of its provisions will require further regulations and guidance before they take effect. The government has published a roadmap indicating most changes will be implemented between 2027 and 2030.
The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.