Defined Contribution (DC) pension policy changes

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Advice guidance boundary review

What’s changing?

The FCA and HM Treasury are undertaking a joint review aimed at finding solutions to address the “advice gap”. This is the gap that currently exists between the provision of information and guidance as an impartial service which sets out options for consumers on the one hand and holistic advice which (for a fee) provides savers with a personal recommendation based on comprehensive information about them
The initial focus of this review was on pensions. However, the outcomes are likely to impact other financial services products
In November 2024, HM Treasury and the FCA published a joint Policy Paper (DP23/5) that set out their early thinking on solutions to address the advice gap and to enable consumers to get the help they want, at a time they need it, at prices they can afford to make informed decisions about their finances
This included three proposals:

targeted support – a new form of support allowing savers to be sent suggestions developed for a group of similar savers, rather than based on the individual’s detailed circumstance
simplified advice – a new form of advice that makes it easier for firms to provide affordable personal recommendations to consumers with more straightforward needs and smaller sums to invest
further clarifying the boundary – providing greater certainty on scenarios where firms and trustees can provide support that does not constitute regulated advice

In February 2025, the FCA launched a consultation on proposals to allow targeted support by FCA authorised firms in a pension context
On 30 June 2025, the FCA launched a consultation on draft rules which would introduce a new targeted support regime to enable firms to do more to support consumers with investing and managing their pensions
Alongside this, the Treasury has published for consultation a policy note and draft regulations setting out proposed changes to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 which will enable the implementation of targeted support
Based on the FCA’s proposals, the provision of targeted support will be a regulated activity. Therefore, trustees will not be able to provide targeted support, in the strict sense, to their members. However, trustees will be able to provide support equivalent to this in most cases. Trustees might also choose to partner with a regulated firm that can provide regulated targeted support to their members
The rules and principles that underpin targeted support are also likely to be relevant for trustees of DC schemes to take into account when they are developing their approach to guided retirement given the similarities between the aims of targeted support and those of guided retirement; with both being designed to steer individuals to an outcome that is considered to be suitable for them based on certain known characteristics

What are the next steps?

The FCA’s consultation on the new rules for targeted support runs until 29 August 2025
The Treasury’s consultation on the targeted support policy note and draft regulations closes on the same date
The FCA plans to consolidate, simplify and clarify its existing guidance on the advice guidance boundary once the final rules for providing targeted support are in place
The DWP and the FCA are also due to publish guidance on the extent to which trustees of occupational pension schemes can provide equivalent support to their members, particularly in relation to retirement decisions

What should schemes and employers do now?

Trustees and FCA authorised providers should engage with the consultations and continue to monitor developments
They may also want to start to consider how they might be able to make use of targeted support to help their members. The FCA is encouraging authorised firms to use its regulatory sandbox to trial new targeted support services

Related Resources

The advice gap – is targeted support the answer?

Collective DC

What’s changing?

Royal Mail launched the first collective DC scheme in the UK on 7 October 2024
The government is planning to introduce regulations to enable multi-employer collective DC schemes to be established. It consulted on its plans for this in October 2024
This will enable collective DC schemes to be established by corporate groups or to serve particular industries or sectors. It will also enable collective DC schemes to be established by commercial providers for unconnected employers
Alongside this, the government is continuing to consider the merits of enabling providers to establish decumulation only collective DC schemes
You can find out more about the government’s proposals in our speedbrief

What are the next steps?

The government is due to publish its response to the consultation on expanding collective DC in Autumn 2025
Regulations to enable multi-employer collective DC schemes to be established are due to be published for consultation alongside this
The government has indicated multi-employer collective DC schemes will be able to apply for authorisation in 2026

What should schemes and employers do now?

We are aware of a number of employers that are assessing the benefits of using or establishing a collective DC scheme in place of a traditional DC arrangement, with a few ready to launch a scheme once multi-employer collective DC is permitted
Some commercial and non-commercial providers are also exploring the option of setting up a collective DC scheme for employers to use

Related Resources

Commercial collective DC schemes move a step closer

Consolidation and scale

What’s changing?

The government has made its vision for the UK’s DC pensions system clear – “a competitive market of fewer, larger, well-run schemes with the capability and scale to invest for the longer term which can benefit savers and their communities”
In line with this, the government has included measures in the Pension Schemes Bill to introduce:

new scale requirements which would mean commercial DC providers and master trusts are required to have at least one default arrangement with over £25 billion of assets by 2030
a transition pathway for commercial DC providers and master trusts that have funds of at least £10 billion by 2030 and have a credible plan to have £25 billion by 2035, and
a new entrant pathway for new and innovative DC products

The scale requirements are due to apply to a master trust’s or GPP’s “main scale default arrangement”. The meaning of this term contained in the Pension Schemes Bill is not currently clear, with further details to be set out in regulations. However, the Bill does indicate that some providers may be able to take account of multiple arrangements when assessing the value of their main scale default arrangement, where those arrangements adopt a “common investment strategy”
The scale requirements will not apply to employer own-trust DC schemes. There will also be an exception for:

hybrid schemes that are only available to a closed group of employers related through their industry or profession
arrangements designed to meet the needs of persons with a protected characteristic within the meaning of the Equality Act 2010

The Pension Schemes Bill also contains measures which will amend the law to enable providers to make unilateral changes to a saver’s pension pots held within workplace personal pension schemes without the individual’s consent to improve saver outcomes and facilitate consolidation. Unilateral changes might include changing the terms on which a saver’s fund are held, changing the investments held within a fund, or transferring a saver’s pot to a different arrangement with the same provider or one operated by a different scheme or provider
Before any unilateral changes are made a provider will need to be satisfied that the ‘best interests test’ set out in the Bill is met and the changes will need to be signed off by an independent expert
Consistent with its consolidation agenda, the government also wants to see a reduction in the number of default funds operated by DC schemes and providers. Although it does not plan to cap the number of default funds a scheme or provider can operate, it has said it expects providers and trustees to proactively consider consolidating their defaults and to take action to transfer members into better performing defaults where appropriate, unless moving savers into the main scale default arrangement will not be beneficial or other justifications apply
It is currently unclear whether this expectation extends beyond GPPs and master trusts
For more information on these proposals, see our speedbrief on the Pension Schemes Bill

What are the next steps?

Legislation to implement the new scale requirements is contained in the Pension Schemes Bill, with more detail to be set out in regulations
It is expected the scale requirements will apply from 2030, with schemes and providers that want to enter the transition pathway needing to apply in 2029
The contractual override for providers of workplace personal pension schemes is due to come into force in 2028
On its desire to see a reduction in the number of default funds, the government has said it will conduct a Ministerial-led review to examine the extent to which schemes continue to operate multiple default arrangements and why this is the case in 2029

What should schemes and employers do now?

Master trusts and workplace DC providers need to consider what these proposals and the final requirements mean for their business models and short, medium and longer-term strategy. They should also look out for the draft regulations which will clarify what constitutes a scheme or provider’s main scale default arrangement
Providers of workplace personal pension plans should also review the proposed power to make unilateral changes to savers’ pension pots to ensure these are workable and should begin to identify any arrangements or individual pots that might benefit from this
Employers that participate in an auto-enrolment scheme operated by an external provider that will not meet the scale requirements may be forced to switch to a scheme or provider that does, in due course, to ensure they continue to comply with their auto-enrolment duties. The government has said it plans to provide support for this, although it is not clear at this stage what this will involve

Related Resources

Dashboards

What’s changing?

The government has implemented legislation to enable the creation of pension dashboards which will enable individuals to view all of their workplace pension savings online and in one place
All workplace pension schemes and providers are expected to connect by their connection date (as set out in DWP guidance), with a legal longstop date for connecting of 31 October 2026
The government has said the non-commercial dashboard being developed by the Money and Pension Service, under its MoneyHelper brand, will be the first to launch. In future, dashboards developed by commercial providers will also be available

What are the next steps?

The largest schemes and providers have started to connect to the dashboards ecosystem
User testing is due to begin in summer 2025
The date from which dashboards will be made available to the public has not yet been set. The government is required to give the industry at least six months’ notice of this

What should schemes and employers do now?

All schemes should now be fairly advanced in their preparations for connecting to the dashboards ecosystem
The Pensions Regulator has issued initial guidance and a checklist on how schemes should comply with their dashboards obligations
We have also summarised the key actions for trustees in our Dashboards to-do list and Top 10 contract considerations for trustees
It is important employers are aware of this change and, in particular, when dashboards go live as this may prompt more queries from current and former employees about their pension

Related Resources

Guided retirement

What’s changing?

The government is planning to introduce new duties on trustees of DC occupational pension schemes requiring them to offer members one or more default pension benefit solutions
These in-scheme default solutions will need to:

provide members with a regular income in retirement; and
be designed taking account of the needs, interests and circumstances of eligible members

Instead of providing a solution within their own scheme, if one of the following conditions is met, trustees may partner with another scheme or provider (such as a master trust or FCA regulated provider) to which members can transfer on retirement
These conditions are either:

it is not practicable for the trustees to design and make available a default pension benefit solution within their scheme; or
the trustees have identified a pension benefit solution in another scheme which they consider will provide a better outcome for a member

Where trustees provide the solution within their scheme they will be required to provide eligible members with prescribed information at particular times. Where a drawdown solution is provided, trustees will also be required to monitor the rate at which members are drawing down their savings and inform the member if they think this needs to be reviewed
We would expect similar requirements to apply where a scheme’s pension benefit solution is delivered by partnering with a third party. However, we are still awaiting confirmation of this from the government
Alongside this, the FCA has consulted on proposals to allow targeted support in a pension context. Please see the advice guidance boundary section for further details

What are the next steps?

These new requirements are included in the Pension Schemes Bill, with further detail to be set out in regulations, on which the government will consult at a later date
The government has indicated that these requirements will apply to:

DC master trusts from early 2027, and
other occupational DC and hybrid schemes and group personal pension plans from early 2028

Ahead of this, new rules on targeted support are due to come into force in 2026

What should schemes and employers do now?

Trustees of DC and hybrid schemes should consider how they will comply with these new requirements – either in-scheme or via partnership arrangements
For more information, check out our industry guidance on DC retirement arrangements and partnerships (Pensions UK membership required) which we produced in partnership with LCP and Pensions UK
Master trusts and providers of contract-based schemes may start developing their decumulation propositions to be used in partnership arrangements with own-trust schemes

Related Resources

Inheritance tax

What’s changing?

The government plans to include most unused DC pension funds and death benefits payable under registered pension schemes and qualifying non-UK pension schemes within the value of a person’s estate for inheritance tax (IHT) purposes from 6 April 2027
This change will impact DB, DC and hybrid schemes, although survivors’ pensions paid under a DB scheme or section are due to be out of scope. As things stand, unused DC pension funds, dependants’ annuities and dependants’ drawdown are due to be in scope. However, the government has confirmed death in service benefits payable under a registered pension schemes will be out of scope, including where they are paid on a non-discretionary basis (see below)
Initially, the government proposed that trustees and pension providers would be responsible for calculating, paying and reporting any IHT that is payable on relevant benefits. However, following an initial technical consultation conducted by HMRC, the government has decided that personal representatives — who are already responsible for administering the rest of an individual’s estate — will be liable for reporting and paying IHT on relevant benefits rather than trustees or providers. Pension beneficiaries will also be jointly and severally liable for any IHT payable on the pension benefits they receive
While this change of approach may ease the burden on schemes to some extent, the proposed process will still require schemes and providers to have engage with personal representatives and beneficiaries. Schemes will also be responsible for informing beneficiaries that they might have to pay IHT and for providing a mechanism to pay any IHT that is due direct to HMRC on a beneficiary’s behalf. Therefore, the new approach will not be without its risks and complexities for schemes.
Annex A in the consultation response outlines (at a high level) how HMRC expects this process to work in straightforward cases
In its response to the initial technical consultation, the government also confirmed it will not bring discretionary death in service benefits under registered pension schemes into the scope of IHT. It has also decided to exclude non-discretionary death in service benefits (such as those payable under the NHS and other public sector schemes), which are currently in scope, from the IHT regime from 6 April 2027. This means from 6 April 2027 all death in service benefits payable from registered pension schemes will be out of scope of IHT, regardless of whether they are paid on a discretionary or non-discretionary basis
Alongside its response to the consultation, the government also published draft legislation to implement these changes. This is subject to a further technical consultation

What are the next steps?

The government is inviting comments on the draft legislation by 15 September 2025 with a view to including the final legislation in Finance Bill 2025-26
HMRC has said it will continue to work with industry experts to develop and refine the personal representative-led process, and will publish further guidance tools and process maps to support personal representatives, pension schemes and beneficiaries ahead of implementation in April 2027

What should schemes and employers do now?

Schemes and employers should assess the potential impact of the revised proposals and consider which benefits under their scheme may be in scope
In particular, they should consider:

how this will impact existing processes for paying benefits following a member’s death, and
when and how to inform members and employees about this change
Schemes and employers should raise any concerns they have with the proposals or the proposed personal representative-led process for calculating, reporting and paying IHT on relevant benefits with HMRC in advance of the legislation being finalised

Related Resources

Speedbrief - Inheritance tax and pensions: An improved approach

Investing in the UK

What’s changing?

The government has made clear it wants to see an increase in the amount of investment in UK productive assets by UK pension schemes, in particular DC schemes
In line with this, the government unveiled the Mansion House Accord in May 2025 under which 17 of the UK’s largest workplace pension providers voluntarily expressed their intent to invest 10% of their funds in productive assets (with 5% invested in UK assets)
In the final report of the Pensions Investment Review, the government confirmed it planned to include a ‘reserve power’ in the Pension Schemes Bill which would, enable the government to set baseline targets for pension schemes to invest in a broader range of private assets, including in the UK, if it considers this necessary in the future
The final report also recognised the need for growth in UK investment opportunities for DC schemes and lists various initiatives designed to increase the number of “investible projects”
The government’s so-called ‘reserve power’ has been included in the Bill in the form of a new asset allocation requirement (see clause 38 of the Pension Schemes Bill) which master trusts and group personal pension plans would be required to meet in order to continue to be used by employers as qualifying schemes for auto-enrolment purposes
Under this provision the government is required to prescribe the percentage of qualifying assets that a relevant scheme is required to hold in its default funds
Qualifying assets for this purpose include private equity, private debt, venture capital or interests in land
This requirement is linked to the new scale requirement and, based on the current drafting, it would apply to master trusts and GPPs used for auto-enrolment from the date on which the scale requirements come into force (i.e. some time in 2030). However, we understand this is not the government’s intention and that the Pension Schemes Bill will be amended to make clear that the asset allocation requirement is being held in “reserve” and that it will only be activated if the government is not satisfied by the progress made by providers in implementing the commitments made in the Mansion House Accord
Before activating this requirement, the Bill requires the Secretary of State for Work and Pensions to assess the impact on the financial interests of relevant members and the effect on the UK economy. The Secretary of State will also be required to consult with the Treasury
The measure contains a sunset provision which means the current and future governments would only have until 31 December 2035 to activate this requirement. After that time the power would fall away
In any event, as drafted, the asset allocation requirement would not apply to occupational DC schemes or the DC section of hybrid schemes operated for a single employer or group of companies

What are the next steps?

Based on the current drafting, it appears as though the asset allocation requirement will apply from 2030. However, as explained above, we understand the Pension Schemes Bill will be amended during its passage through Parliament to reflect the government’s stated intention that this is a ‘reserve power’ which will not be activated at this time
The Pensions Regulator and the FCA plan to launch a joint market-wide data collection exercise in 2025 which will include asset allocation information in workplace DC schemes. It is envisaged this will be run annually until the new value for money disclosure requirements are in force and equivalent data becomes available
This data collection exercise will request asset allocation information from major DC providers, broken down by asset class and sub-asset class, with UK overseas splits, and the first reporting will be available in early 2026. It is currently unclear whether this exercise will extend to large own-trust DC schemes

What should schemes and employers do now?

Master trusts and providers should monitor developments as the Pension Schemes Bill goes through Parliament and look out for amendments to confirm that this new requirement will not be activated at this time
In any event, they:

should prepare for the new asset allocation data collection exercise, and
may want to consider whether increasing investments in private assets (particularly UK assets) is appropriate, having regard to their legal duties to members and savers

Related Resources

Pensions Commission

What’s changing?

The government has launched a new Pensions Commission. This will build on the Pensions Investment Review and the measures contained in the Pension Schemes Bill
As expected, the Commission will focus on the adequacy of pension savings and explore the barriers stopping people from saving enough for their retirement
The announcement also suggests that, as part of its work, the Commission will examine the gender pension gap and look at why 45% of working age adults are saving nothing at all into a pension, with lower earners, the self-employed and some ethnic minorities particularly at risk
However, the Pensions Commission’s remit will not be limited to this. It has been tasked with considering the long-term future of the UK’s pensions system, including:

outcomes and risks for future cohorts of pensioners on current trajectories through to 2050 and beyond
how to improve retirement outcomes, especially for those on the lowest incomes and at the greatest risk of poverty or undersaving
the role of private pension provision and wider savings, building on the foundation of the State Pension, in delivering financial security in retirement and supporting those approaching retirement
the long-term challenges of supporting an ageing population, and
proposals for change beyond the current Parliament, that build on the measures in the Pension Schemes Bill and ensure Britain in the mid-21st Century delivers financial security in retirement through a pensions framework that is strong, fair and sustainable

The new Pensions Commission will be made up of Baroness Jeannie Drake (a member of the original Commission), Sir Ian Cheshire and Professor Nick Pearce who will be responsible for steering its work.
In an effort to repeat the success of the original Pension Commission in building a national consensus, they will work closely with stakeholders such as the Confederation of British Industry and the Trades Union Congress.
The Commission is due to issue its final report in 2027
Alongside the Commission and as required by law, the government has also launched the latest State Pension Age Review, commissioning two independent reports for government to consider when deciding the State Pension age for future decades:

Dr Suzy Morrissey will report on factors government should consider relating to State Pension age, and
the Government Actuary’s Department will prepare a report on the proportion of adult life in retirement

The findings from both reports will be considered as part of the Government’s State Pension Age Review. The findings may also be shared with the Pensions Commission as it considers the longer-term future of the pensions system as a whole
The Pensions Commission follows Phase One of the government’s Pensions Review, which has become known as the ‘Pensions Investment Review’. The Final Report of Phase One was published on 29 May 2025
Measures reflecting several of the recommendations from the Pensions Investment Review are included in the Pension Schemes Bill which is currently going through Parliament

What are the next steps?

The Commission will conduct its work over the next year or so with its final report due to be published in 2027

What should schemes and employers do now?

Look for opportunities to engage with the Commission and monitor developments

Related Resources

Speedbrief - Government launches Pensions Commission and State Pension Age Review

Small pots

What’s changing?

The government is planning to introduce a solution to address the growing number of small deferred DC pension pots.
Once this is implemented, DC and hybrid schemes used for auto-enrolment will be required to transfer eligible pots to an authorised small pots consolidator
Pots in scope will initially be (broadly):

pots with a value of £1,000 or less
held within default funds in auto-enrolment schemes, and
where no contributions have been paid in for at least 12 months

Pots will either need to be transferred to a consolidator chosen by the member or, where a member has not made a choice, their pot will be transferred to:

the consolidator in which they currently have the largest pot, or
where a member does not have an existing pot with a consolidator, a consolidator allocated on a carousel basis

A Small Pots Delivery Group was established to move this forwards. On 24 April 2025, the DWP published a report which summarises the Delivery Group’s recommendations
This includes plans to create a ‘Small Pots Data Platform’ through either a government body or an outsourced provider to support pension schemes to transfer millions of eligible deferred small pots automatically on behalf of their members.
Further details are set out in our speedbrief

What are the next steps?

Legislation to implement the government’s small pots solution is included in the Pension Schemes Bill
Once the Bill has received Royal Assent, the government plans to consult with industry on implementing regulations during the course of 2026 with elements of the legislation expected to come into force during 2027 or 2028
The government does not expect the duties on pension schemes to transfer and consolidate eligible small pots to come into force until 2030 (with a phased approach to implementation expected)
The PLSA has been leading an industry led Feasibility Review which was due to report to the government on the proposed role and remit of the Small Pots Data Platform by the end of June 2025

What should schemes and employers do now?

Trustees of and employers with DC or hybrid schemes should monitor developments
Schemes and providers should also consider what steps can be taken to improve the quality of their member data, as this will be critical to the success of the proposed solution

Related Resources

Value for money

What’s changing?

The government and the FCA are planning to introduce a new value for money (VfM) framework for workplace DC schemes. They believe this will play an important role in shifting the focus from cost to long-term value in workplace DC schemes
In August 2024, the FCA published its consultation on a new value for money framework for DC contract-based schemes. The framework for trust-based DC occupational pension schemes will be based on this
The VfM framework will apply to default arrangements under qualifying auto-enrolment schemes and legacy defaults only
The proposed VfM framework consists of four elements:

consistent measurement and annual public disclosure of various metrics related to investment performance, asset classes, costs and charges and service quality
assessment of performance against comparator schemes or relevant benchmarks
public disclosure of assessment outcomes, and
specific actions and consequences depending on the rating an arrangement is given

The Pension Schemes Bill contains provisions which will enable the government to implement the VfM framework for occupational DC schemes. A similar regime will be introduced by the FCA for contract-based schemes
The measures contained in the Pension Schemes Bill reveal further details about how the VfM framework will operate, with more to be set out in regulations on which the government will consult separately
In particular, the Bill reveals there will be at least three ratings that can be awarded to a scheme:

‘Fully delivering’ – if the trustees determine their scheme is delivering value for money
‘Not delivering’ – if the trustees determine their scheme is not delivering value for money and certain conditions are met
‘Intermediate rating’ – in any other case

The legislation envisages there may be more than one grade of intermediate rating. This will be confirmed in regulations
The Bill sets out some of the consequences that will flow from a scheme being assigned a ‘not delivering’ rating, including a requirement for the trustees to prepare an action plan setting out proposed measures to improve the position of members of the scheme and assess whether members would be better off transferring to another scheme or arrangement. This action plan must be shared with the Pensions Regulator
A scheme that is assessed as ‘not delivering’ value for money will also be required to close to new business
The consequences of a scheme being assigned an intermediate rating is due to be set out in regulations
For more information on how the VfM framework will operate, read our:

speedbrief on the FCA’s consultation on the framework
speedbrief on the Pension Schemes Bill, and
article on the VfM consultation in DC Practical Notes

What are the next steps?

Legislation to introduce the new VfM framework for trust-based workplace DC schemes is included in the Pension Schemes Bill with more detail to be set out in regulations on which the government will consult separately. The FCA will introduce its own rules to extend the framework to contract-based workplace DC schemes
The legislation broadly reflects the proposals set out in the FCA’s consultation on the new VfM framework, which closed in October 2024. A response to that consultation is still awaited. We can then expect a consultation on the detailed VfM rules that will apply to contracted-based auto-enrolment schemes
The government anticipates the new VfM framework to be operational in 2028 with the first regulatory assessments expected to take place during the course of that year

What should schemes and employers do now?

Trustees of and employers with DC or hybrid schemes and workplace DC providers should:

monitor developments as the Bill makes its way through Parliament
engage with the FCA’s consultation on the detailed VfM rules for contract-based schemes, and
look out for the draft regulations once the Bill has received Royal Assent

Trustees and providers should also consider what processes they will need to have in place to fulfil their obligations under the new framework and assess how their scheme is likely to perform
Employers can find out more about what this means for them in our article on what the framework means for employers

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