The Pension Schemes Act 2026: A new era for UK pensions

This is arguably the most wide-ranging set of pension changes since the new pension freedoms came into effect in 2015. It will significantly change the way both defined benefit (DB) and defined contribution (DC) plans operate.

While the Act is now law, its implementation will be phased in over the coming months and years, with consultations, guidance and regulations still to follow. Some deadlines may be a year or more away, but schemes need to start thinking about these changes now. This is especially true because there may be little time between the final rules being known and the implementation deadlines.

What does Royal Assent mean in practice?

What was the Pension Schemes Bill 2025 (Bill) has now completed its long parliamentary process and become the Pension Schemes Act 2026 (Pensions Act). However, it is important to understand that this is 'a law' rather than 'the law' at this stage. Very little of it is actually in force today. What the Act does is establish the legal framework that allows the UK Government (government) to activate different provisions when ready and to create the detailed regulations that will bring these skeletal provisions to life.

Key provisions for defined benefit schemes

DB surplus payments: Unlocking value

One of the most anticipated provisions addresses DB surplus payments, removing longstanding obstacles that have prevented schemes from easily returning surplus funds to sponsoring employers.

The new Pensions Act grants trustees the power to modify scheme rules by formal resolution, enabling surplus refunds to employers even where no such express provision exists in the current rules. This discretionary power can be exercised with appropriate restrictions as trustees see fit.

Before any payment can be made, the scheme actuary must provide a certificate confirming the scheme's funding position. The government is minded to setting the threshold at full funding on a 'low dependency' basis, though this will be subject to regulations following consultation.

The existing requirement for trustees to be satisfied that exercising the power is in members' interests has been removed; with the government saying that trustees must still act in accordance with their overarching trust law duties to scheme beneficiaries, which will remain unchanged. The government has indicated that consultations on the surplus regulations will take place later this spring, with guidance from The Pensions Regulator (TPR) expected in May 2026 and the final regulations expected to come into force by the end of 2027.

Section 37 remediation: Resolving historical uncertainty

The industry shorthand for this provision is the 'Virgin Media legislation' arising as it does in response to the Virgin Media Ltd v NTL Pension Trustees II Limited [2023] case, and we warmly welcomed its addition to the Bill. These measures address the very serious concern for trustees of some schemes who have been uncertain whether they had - and would be able to demonstrate, if challenged - the necessary actuarial confirmation for past rule alterations.

The legislation allows pension scheme actuaries to provide retrospective confirmation where they consider it is reasonable to conclude that historic pension scheme amendments would not have prevented the reference scheme test (RST) from being met. When such confirmation is given, the alteration will be treated for all purposes as having always been valid.

Any amendments made to schemes or sections of schemes either wound up or within the Pension Protection Fund (PPF) or Financial Assistance Scheme (FAS) before Royal Assent are automatically validated.

The Financial Reporting Council (FRC) has issued guidance to scheme actuaries, and The Pensions Regulator (TPR) has issued guidance to trustees, providing a clear framework for resolving these long-standing uncertainties. This pragmatic legislation is welcome; however, it is important to remember that remediation is not automatic for current schemes.

While in many cases it will be straightforward for the scheme actuary to provide the required confirmation, remediation will often require careful consideration and in some cases unfortunately it might not be possible. In these cases, it may be necessary to look for further information in relation to the original certification or find another solution to the Virgin Media problem.

Pension protection fund pre-97 indexation

The Pensions Act includes provisions for the limited degree of PPF pre-97 indexation announced at the UK Autumn Budget 2025. However, it does not provide for 'catch-up' increases for past years, and nor does it provide for increases where none were guaranteed in scheme rules.

The first increases will be paid in January 2027. There will be relatively little immediate impact for most schemes as the PPF is currently not charging them a levy. However, the changes will feed through to UK Pensions Act 2004 section 179 and section 143 valuations, and more materially for any scheme heading to PPF assessment.

Super funds

Superfunds already operate within existing pensions legislation and TPR's interim guidance. The Pensions Act puts this regulatory framework on a permanent footing, allowing TPR to authorise superfunds when satisfied they will meet ongoing requirements. This enables assessment of the superfund's organisation, staff, plans, policies and procedures to ensure robust governance and continuity arrangements. Secondary legislation and TPR's code are currently expected to be in force by October 2028 at the latest.

These measures are designed to protect scheme members and enhance stakeholder confidence in the superfund market. We expect this will lead to further development and innovation in the superfund space.

Transformative changes for defined contribution schemes

The defined contribution (DC) changes in the Pensions Act are particularly important and will change how plans will support members as they retire.

Guided retirement: Supporting the unengaged

If auto-enrolment was about getting the unengaged into pension saving, the new Guided Retirement provisions in the Pensions Act are its natural counterpart for helping the unengaged turn their pension savings into an income. We believe this will be the provision that most transforms the retirement experience for ordinary DC members.

The new legislation places duties on trustees to consider and put forward default pension benefit solutions for their members. For the first time, trustees will have to offer retirement options directly from the scheme or work with other schemes to find better solutions.

We expect this to lead to new retirement 'decumulation' solutions that better serve members. These solutions include the 'Retirement CDC' and the 'Flex First, Fix Later' approaches. These innovations could fundamentally change how DC members transition into retirement, providing structure and support at a critical life stage, as well as slowing the shift away from growth assets in the run up to retirement.

The consultation on Retirement Collective Defined Contribution (CDC) pension schemes, October 2025, included a roadmap indicating the following timeline:

•   2026-27: Development of regulations and Financial Conduct Authority (FCA) rules, with Department for Work and Pensions (DWP) consultation on detailed guided retirement policy expected in Q2-Q3 2026

•   2027: Master trusts required to comply by Q4 2027

•   2028: Other trusts and group personal pensions (GPPs) required to comply, likely by Q2 2028

Small pots consolidation: Tackling a persistent problem

From 2030, there will be a requirement for members' dormant small pots of £1,000 or less to be automatically consolidated, unless a member opts out. The government defines dormant pots as those in auto-enrolment schemes where the member has not selected or confirmed the investment strategy and to which no contributions have been made for at least 12 months.

While the House of Lords pushed this minimum period up to 36 months, the government brought it back down to 12 months in the House of Commons.

Members can choose their own consolidator scheme. If they do not choose a scheme, one will be chosen for them from the available consolidator schemes through a 'carousel' arrangement. This automatic consolidation should help fix the growing number of small, often forgotten pension pots that are currently in the system. These small pension pots make it harder for members to track their money and make it more expensive to administer.

Scale and asset allocation requirements

The legislation introduces requirements for multi-employer schemes operating in the auto-enrolment market to demonstrate scale and meet certain asset allocation criteria. These DC schemes will need to have at least £25 billion in their main default fund by 2030 or have £10 billion by that date and a credible plan to reach £25 billion by 2035. The government hopes that creating 'megafunds' will lead to better investment governance and more diversified asset allocations.

The mandation debate

The most politically contentious aspect of the Bill centred on the so-called "mandation" clauses, which grant power to the government to impose investment conditions on pension schemes. The new legislation states that a scheme will not be a qualifying scheme for auto-enrolment unless it invests in a particular way. This gives the government power to direct that a scheme's default fund must invest a specified percentage of assets in particular unlisted asset classes -and a specified percentage in UK unlisted assets-to maintain its status as a qualifying scheme.

These asset classes and percentages would be set out in future regulations. Schemes not meeting these asset allocations would effectively be closed to auto-enrolment business, as employers could not meet their auto-enrolment duties by contributing to them, even for existing active members.

The House of Lords repeatedly voted to remove the mandation clauses, reflecting concerns about imposing prescriptive investment requirements. However, the government used its majority in the House of Commons to reinstate these, but compromised by diluting the power so that it could not be deployed to go further than many larger schemes have already agreed to in the Mansion House Accord-5% in UK private markets and 10% in private markets overall-and by providing for the requirement to fall away at the end of 2035 even if it is brought into force.

The revised clause also makes it easier for schemes to set aside the mandated asset allocation - they can do so if their regulator thinks it reasonable for them to have concluded that the asset allocation is likely not to be in the best interests of members-rather than the regulator having to be satisfied that it would cause material financial detriment to members. The government has repeatedly said it does not intend to use the power if the Mansion House Accord is satisfactorily implemented.

Value for money framework

The Pension Act also introduces a value for money framework (VFM) for DC schemes. Its purpose is to encourage decision-makers to look beyond cost and focus on value, however, achieving this shift is complex. The DWP expects to consult on secondary regulations in 2026. The FCA expects to consult one final time alongside DWP's consultation, to ensure alignment. The government expects first publication of VFM data in 2028.

Pension dashboards

The Pensions Act will also extend pension dashboards to PPF and FAS benefits, providing better visibility to members of their future pensions.

Looking ahead: Our perspective

• The Pensions Act represents a major change in UK pensions policy and will see some policies that have been debated for years finally come to fruition.
• For DB schemes, the surplus payment provisions and section 37 remediation-that refers to the process of addressing issues arising from the Virgin Media Ltd v NTL Pension Trustees case-offer immediate opportunities to unlock value and resolve historical uncertainties. For DC schemes, guided retirement and small pots consolidation promise to really change members' experience and understanding of their pension pots.