Importantly, schemes will be expected to compare their VfM performance against larger providers, including those managing assets exceeding £10 billion. Given the inherent advantages of scale, this comparative requirement is likely to accelerate market consolidation, as smaller schemes struggle to match the performance and cost efficiency of larger alternatives.

The VfM regulations process will be finalised over 2026/27, with the first assessment across the new framework to take place from 2028.

Under the newly proposed framework, pension schemes would be required to transfer eligible small pots to an authorised default consolidator. Members would receive a transfer notice and have the option to select their preferred consolidator or opt out of the process entirely. The Bill includes provisions for TPR to authorise certain providers (following application) to operate as consolidators, which may include minimum standards that will likely be based on scale. 

Once the regime is in place, trustees or managers would typically have 12 months to transfer any qualifying small pot - either from the date the framework takes effect, or if later, from the date on which the pension pot becomes small and dormant.

While the overarching direction is now clear, much of the operational detail remains to be defined through forthcoming regulations. Trustees or managers will therefore need to wait for this guidance before fully understanding their responsibilities. Nonetheless, it is expected that the new framework will require significant administrative effort; but it could also deliver long-term cost savings if the government's assumptions regarding cost efficiencies prove to be accurate.

The Government intends to undertake a consultation on the proposed regulations in the 2027/28 period, with master trusts anticipated to be eligible to apply for authorised consolidator status concurrently. The formal selection of consolidators is scheduled for 2029, with the associated transfer obligations expected to come into effect in 2030.

An alternative route will be made available to support new market entrants, that offer strong  potential for growth and ability to innovate. From the recent consultation response, we expect single-employer trusts and CDC schemes that are available to a closed group of employers related through their industry or profession, to also be excluded from this requirement. We also expect hybrid schemes and default arrangements that serve protected characteristics, such as religion, would be exempt from these requirements. 

Contractual override

To address the current requirements for individual member consent for contract-based arrangements, which has long been deemed a barrier to consolidation, the Bill introduces a contractual override. This provision enables pension providers to transfer members’ pension pots to an alternative scheme without the current requirement to obtain individual consent. The use of this power will be subject to robust safeguards, such that transfers must demonstrably serve the best interests of savers and be certified by an independent third party. The FCA will be responsible for outlining detailed rules governing the implementation of this new framework.

In a notable shift, the Bill also proposes changes to the criteria for auto-enrolment scheme approval for master trusts and GPP schemes. This includes an “asset allocation test”, requiring a prescribed proportion of “qualifying assets” within default investment strategies. Qualifying assets are outlined as potentially being productive finance assets (e.g. private equity, private debt, venture capital, property), and may be required to be UK-based, aligning with broader government goals to channel pension capital into domestic economic growth. 

These changes would grant regulators wide discretion to approve or deny an auto-enrolment scheme’s status based on its investment profile or scale. Trustees, managers, and providers will need to consider how their current arrangements measure up against the proposals and should begin planning for the upcoming changes in strategy, governance and investment allocation. 

The Bill states that DC master trusts and GPPs that fail to meet the new requirements can no longer be used for auto-enrolment by employers. This could significantly affect the business models of current providers and may require employers to switch their auto-enrolment scheme or provider.

Following the launch of the Mansion House Accord (a voluntary commitment by seventeen of the largest defined contribution pension providers to invest 10% of their main default funds in private markets including 5% in the UK specifically) the government has decided against mandating investment in particular areas. However, the Bill does introduce a “reserve power” enabling the government to set quantitative baseline allocation targets for pension schemes (albeit this is limited to relevant master trusts and GPP schemes) to invest in a range of private assets, including UK-based assets. The roadmap clearly states that the government will only exercise this power if the industry fails to deliver the changes outlined in the Mansion House Accord, and that it is intended strictly as a 'last resort' measure, with clear safeguards to protect savers’ interests.

Default retirement solutions

The Bill also introduces new duties on trustees or managers of a relevant scheme to design and make available “default pension benefit solutions” for DC members at-retirement (from which members can choose to opt out). A default retirement solution must be designed to deliver a regular income throughout retirement and must reflect the needs, preferences, and individual circumstances of scheme members. Further regulations will be published providing details about how trustees or managers are to assess the needs and interests of scheme members and how solutions will be required to provide regular income in retirement.

The government has indicated these requirements will be phased in, with master trusts scheduled to start complying in 2027 and GPP schemes in 2028.

Next steps

The Bill is currently progressing through Parliament and is not expected to receive Royal Assent until 2026. As many of the key reforms outlined in the Bill will require secondary legislation, each subject to separate consultation, implementation of these measures will take time. Given the scale of the proposed reforms and the timelines set out in the government's roadmap, the pensions industry should prepare for a period of significant change.