The new Pension Schemes Bill: What you need to know

On Thursday 5 June, a week after the final report of the Pensions Investment Review was released, the Government published the Pension Schemes Bill. While the Bill is what will eventually turn the report’s conclusions into law, in many respects, the extensive use of regulatory powers means it is less informative than the report. 

The Bill has eight main elements: 

1. Local Government Pension Schemes (LGPS) 
   The Bill legally defines asset pool companies, which will manage investments for LGPS funds. The government will have broad powers to create rules for these companies, including:
   • Requirements for asset pool companies: What conditions they need to meet.
   • Mandatory use of asset pools: The 86 LGPS authorities in England and Wales will have to use these asset pool companies for their investments.
   • Dividing responsibilities: Clearly defining what each LGPS authority and asset pool company is responsible for.
   • Local investment duty: LGPS authorities must work with local and regional councils to find suitable local investment opportunities for pension funds.
2. Paying Surplus to Employers 
   This part allows Defined Benefit (DB) pension schemes to change their rules to share any extra money (surplus) with the sponsoring employer. This is allowed as long as the trustees still prioritize the interests of the scheme members. While strict funding rules will apply, the threshold for paying out surplus will likely be lower than it is today, meaning more schemes could potentially share surplus funds.
3. Value for money (VFM) 
   This section aims to ensure pension schemes provide good value for money, not just low costs, especially since private investments often have higher fees. Future regulations will require schemes or their managers to:
   • Assign VFM ratings: Pension schemes will be rated on the value they provide.
   • Action for underperformers: Schemes rated as "not delivering" value might be forced to merge with or transfer members to better-performing schemes.
4. Small pots 
   New rules will allow for the creation of "multiple default consolidators." These will be companies where small, scattered pension pots can be automatically transferred. Initially, a "small pot" will be defined as up to £1,000, provided no contributions or member-initiated investment changes have occurred for at least a year.
5. Scale and asset allocation
   This is a more debated part of the Bill. It requires Defined Contribution (DC) multi-employer schemes in the Automatic Enrolment market to manage a minimum of £25 billion in at least one main default investment fund by 2030. There will be some exceptions, for example, for funds already managing £10 billion with clear plans to reach £25 billion. These "megafunds" may also be required to invest a specific percentage (likely 10%, not increasing after 2035) in "qualifying assets" like private equity or venture capital. The government hopes that its previous initiatives (like the Mansion House Accord) will encourage these investments, potentially making some of these regulations unnecessary.
6. FCA-Regulated Pension Schemes: Contractual override 
   This provision allows pension providers to transfer a saver's pension contract to another arrangement (either within the same provider or to a different one), or to change contract terms, without needing the individual member's consent. This can only happen if it's in the member's best interest. Essentially, this streamlines consolidation for contract-based pensions, similar to the "small pots" initiative but without the £25 billion target.
7. Default Pension Benefit solutions 
   Trustees of DC occupational pension schemes will be required to offer a "pension benefit solution" for paying out accrued pension rights to members. The Financial Conduct Authority (FCA) will impose a similar requirement on the pension providers they regulate.
8. Superfunds 
   A superfund acts as a consolidator for DB schemes, operated by a third party. While the concept has been discussed for a while, its adoption in the UK has been slow. The Bill establishes a formal framework for regulating and authorising superfunds, replacing the current interim supervision by the Pensions Regulator. 

Overall, the Bill's long-term aim is to create a more consolidated, efficient, and higher-returning pension system. While the full effects will unfold over several years, those approaching retirement in the next decade or so are likely to experience a shift towards clearer, potentially more valuable, and easier-to-manage pension arrangements.

Planning for retirement can be a complex matter as there are lots of variable factors to consider. Speaking to a qualified financial adviser, who stays up to date with changes such as these in the new Pension Schemes Bill, can help with developing a robust plan for the future. Get in touch to find out more about our retirement planning services.

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The information in this article is based on current laws and regulations which are subject to change as at future legislations.

A pension is a long term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.

The information in this article is correct as at 18/06/25.

Source:

• Pension Schemes Bill