The Pension Schemes Act 2026, which received royal assent on 29 April 2026, introduces a framework for various reforms in Defined Benefit (DB) and Defined Contribution (DC) pension schemes. The Act mainly grants powers to make regulations, with specific measures outlined in subsequent regulations.
Defined Benefit (DB) Pensions:
- Local Government Pension Scheme (LGPS): The Act provides a framework for regulations on asset pooling, local investment, and fund governance. It facilitates the compulsory merger of LGPS funds. Most measures came into force on 29 April 2026.
- Power to Pay Surplus to Employer: The Act introduces a statutory power allowing trustees to modify scheme rules to permit surplus extraction from DB schemes. The power to make regulations came into force on 29 April 2026, with the remainder of these provisions to come into force at a later date. The government plans to set the threshold for surplus release by reference to the low dependency basis, with the tax rate remaining at 25%.
Defined Contribution (DC) Pensions:
- Value for Money (VFM): The Act sets out the framework for regulations to evaluate and promote best practice in DC schemes. Regulations will cover assessment of investment performance, service quality, costs, and charges, with schemes not meeting VFM requirements facing member transfers. VFM will come into force on a date specified in regulations.
- Consolidation of Small Dormant DC Pension Pots: The Act establishes a framework for the automatic consolidation of DC pension pots with a value of up to £1,000 where a member has not made any contributions or investment decisions for at least 12 months. This applies to schemes used for automatic enrolment, with regulations expected in 2027/28.
- Scale and Asset Allocation (Mandation): The Act introduces a requirement for UK resident authorised master trusts and group personal pension schemes (GPPs) to have at least £25 billion of assets under management (AUM) in their main scale default arrangements by 2030. It also includes provisions for asset allocation, with the power to mandate a certain proportion of DC main default funds to be invested in productive finance. The scaling provisions must not be brought into force before 1 January 2030, and asset allocation regulations must not be made before 1 January 2028.
- Default Arrangements and FCA Contractual Override: The Act sets out the framework for regulations to prevent providers from operating new non-scale default arrangements and requires the consolidation of existing non-scale default arrangements. It also introduces a contractual override regime for FCA-regulated pension schemes in relation to underperforming and legacy arrangements.
- Guided Retirement: The Act requires trustees or managers to prepare, publish, and review a pension benefits strategy, including identifying and implementing steps to understand member requirements, designing or identifying default solutions, and communicating effectively with members. Regulations are expected in 2026-2027.
Superfunds:
- The Act sets out a framework for the authorisation and regulation of DB commercial consolidators, referred to as superfunds. TPR’s approval will be required before a transfer may be made to a superfund. Regulations are expected in 2026, with the new regime for superfunds expected to be in place during 2028.
Miscellaneous:
- Virgin Media Remedy: The Act introduces a remedy for schemes in England, Wales, Scotland, and Northern Ireland, including “public service schemes,” relating to amendments to benefits in schemes contracted out on the reference scheme test basis between 6 April 1997 and 5 April 2016.
- PPF and FAS: The Act introduces indexation of PPF and FAS compensation in relation to pre-1997 accrual. It also introduces measures to address limitations on the PPF levy and provides that administration and other costs of the PPF and PPF Ombudsman will be met out of PPF funds.
- The Pensions Ombudsman (TPO): The Act amends section 91(6) PA95, allowing trustees to offset future pension payments from a member’s pension after obtaining a determination made by TPO in their favour, without needing to seek a county court enforcement order.
- AWE Pension Scheme and a New Public Sector Scheme: The Act creates the framework for the establishment of a new unfunded public sector scheme to take a transfer of the AWE pension scheme’s liabilities on a mirror image basis. The assets held by the scheme are to be sold and the proceeds transferred to the Treasury, with consequences for members being tax neutral.
