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Catalyst: DC pensions
DC PENSIONS TECHNICAL UPDATE | SPRING EDITION
Notes from our editor
A watershed moment has truly been seen for all of us in the pensions industry with the passings of the Pension Schemes Act. Although it only had its first reading a little under a year ago, the magnitude of the act has made it feel like it has been around a lot longer.
And while there are still many hurdles to clear before we have the full picture of what compliance looks like, we are at least one step closer to ushering in the changes that will improve retirement outcomes for retirees in the UK for generations to come.
It’s been a very busy start to 2026 across the board – reflected in the sheer number of updates this issue contains – but don’t miss out on our own addition to the DC pension conversation in the latest version of our DC default investment strategies report, produced in conjunction with our colleagues at Howden.
Mark Futcher
Partner and
Head of DC
At a glance
- The Pension Schemes Act has now received Royal Assent, bringing in measures aimed at improving retirement outcomes in the UK.
- The National Insurance Contributions (Employer Pensions Contributions) Act 2026 has also recieved Royal Assent, introducing a framework to restrict National Insurance relief to the first £2,000 of pension contributions made via salary sacrifice in each tax year.
- Clarification has been published in the Finance Act 2026 on the relationship between Inheritence Tax and pensions.
- The Pensions Regulator has published DC landscape data and has urged small DC schemes to consolidate.
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New guidance has been issued by the Department of Work and Pensions on trustees' fiduciary duties.
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New guidance from the Pensions Administration Standards Association (PASA) aims to strengthen partnerships between trustees and their administrators.
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The development of Collective Defined Contribution (CDC) schemes continues to gather pace.
- The Pensions Regulator, working with the City of London Police, issued a new scam alert to more than 35,000 industry professionals.
- The Employment Rights Act 2025 became law on 18 December 2025, bringing in changes to employee benefits in 2026 and 2027.
- The Financial Conduct Authority is consulting on changes to make it easier for firms to offer more streamlined financial advice.
Pension Schemes Act receives Royal Assent
The Pension Schemes Act received Royal Assent on 29 April 2026, the day after the former bill received final Parliamentary clearance.
Many of the headlines in industry press in the days prior to this were focussed on the disagreement between the House of Lords and the House of Commons regarding the power to mandate asset allocations.
Following several revisions a final agreement was reached of a statutory cap limiting mandation to 10% of a default auto-enrolment fund, 5% of which may be directed to UK assets.
This focus has somewhat overshadowed the other main measures of the Act, aiming to transform the pensions landscape, which include:
- enabling small pension pots to be automatically consolidated;
- introducing a standardised Value for Money framework;
- creating DC megafunds of £25bn;
- requirements for default pension benefit solutions;
- consolidating Local Government Pension Scheme assets into pools managed by FCA-regulated managers, supporting long-term investment in local infrastructure, housing and clean energy across the country; and
- providing more flexibility to release surplus funds from defined benefit schemes.
We now expect to see a series of consultations as the detailed rules behind the policies are set out. These will include small pots consolidation mechanics and receiving arrangements; VfM metrics and intervention outcomes; megafund requirements; and DC decumulation and default solutions.
Value for Money (VFM) Framework
One of the key measures in the Pension Schemes Act 2026 is the creation of a standardised VFM framework for DC pension schemes. The Financial Conduct Authority (FCA) and the Pensions Regulator (tPR) issued a consultation, which ran from January to March 2026, on detailed proposals for the new framework and built on the previous consultation from 2024.
New measures proposed in the consultation included:
- the creation of a central VFM database to be used for publication of VFM data and to allow for greater consistency of comparisons for the relative assessments;
- the introduction of forward-looking metrics for investment risk and return, which would sit alongside the backwards-looking metrics previously proposed;
- a more limited set of ‘service quality’ metrics, focusing on data quality and administration performance, with wider metrics looking at member engagement to be developed further as comparable data becomes more widely available;
- the inclusion of an additional rating (dark green) for schemes providing value on top of the previous traffic light system, to support identification of consistently high performance in the assessments;
- ‘red-rated’ schemes, where value is not provided and improvement to reach value cannot be achieved, must transfer out members where it is in their best interests.
Barnett Waddingham responded to this consultation, noting that we support the overarching principles and policy intent behind the proposed framework and that a consistent, transparent and outcomes-focused approach to assessing VFM has the potential to strengthen member protection, improve decision-making and raise standards across the DC pensions market.
However, some aspects of the current proposals give us cause for concern, notably the risk of providers herding into a narrow range of investment strategies, suppression of innovation and reduced competition and differentiation between providers. Care will need to be taken to ensure that well-intentioned regulatory objectives do not lead to unintentional consequences such as sub-optimal long-term outcomes for members.
Impact on Productive Finance
With the Pension Schemes Act 2026 receiving Royal Assent on 29 April 2026, this marks a significant step in the Government’s push to increase pension investment in “productive” assets such as infrastructure, private equity and venture capital.
Key productive finance related measures include:
- Scale requirements: The Act paves the way for minimum scale expectations for DC schemes, with multi-employer schemes expected to operate at
c.£25bn+ by 2030. This is intended to drive consolidation and enable access to a broader range of investments at lower cost. - Mandation is a live (but currently unlikely) risk: The reserve power is intended as a backstop, but its existence reinforces the direction of travel. Its use would likely reflect a failure of the voluntary approach
- Alignment with Mansion House Accord: The reforms sit alongside the voluntary commitment by major providers to invest at least 10% of DC default funds in private markets by 2030 (with 5% in the UK), which remains subject to fiduciary duties and availability of suitable opportunities.
What this could mean for DC schemes?
- Continued pressure to scale or consolidate: Smaller schemes may face increasing pressure to consolidate or partner, as scale becomes more closely linked to both regulatory expectations and investment capability.
- Increased allocation to private markets: Most master trusts and providers are likely to increase allocations to private markets over time - although implementation will vary depending on governance, cost and operational readiness.
- Greater focus on delivery, not just allocation: The debate is shifting from whether to invest in productive finance to how to do it well - including manager selection, liquidity management, and value for members.
- Mandation is a live (but currently unlikely) risk: The reserve power is intended as a backstop, but its existence reinforces the direction of travel. Its use would likely reflect a failure of the voluntary approach.
- Dependence on a credible investment pipeline: A key constraint remains the availability of suitable UK assets. Without this, there is a risk that policy ambition runs ahead of practical implementation.
Things to consider
- Assess private market propositions within default strategies, focusing on value, diversification, member outcomes and implementation.
- Provider / master trust selection, including evolving investment capabilities.
- Evaluate consolidation options and their impact on governance and member outcomes.
Framework for salary sacrifice restrictions brought into law
Also on 29 April 2026, the National Insurance Contributions (Employer Pensions Contributions) Act 2026 received Royal Assent. This Act introduces a framework to restrict National Insurance relief to the first £2,000 of pension contributions made via salary sacrifice in each tax year. This legislation was also subject to disagreement between the House of Commons and the House of Lords, however the Lords’ attempt to increase the cap was unsuccessful. The income tax treatment of pension contributions is unaffected by this Act.
Further regulations are required to actually bring the cap into force and guidance is expected before the cap is implemented. Employers should in the meantime, continue to plan for the introduction of the £2,000 cap from 6 April 2029, and fully utilise NI savings in the short term for both employees and employers.
You can read the BW guide here.
Inheritance Tax on pensions update
The Winter Catalyst issue highlighted Inheritance Tax (IHT) would be due on most unused pension funds from April 2027. This was subject to legislation and with some of the policy detail and guidance yet to be confirmed.
The Finance (No. 2) Bill 2025-26 received Royal Assent on 18 March 2026 to become the Finance Act 2026. This gave clarification on some key points, including pension benefits which will be out of scope for IHT:
- All death in service benefits payable from registered pension schemes including dependants’ scheme pensions and charity lump sum death benefits. This includes death benefits payable from insured registered group life assurance schemes.
- Benefits passing to a surviving spouse or civil partner
Unused pension funds which remain on death, will however be subject to IHT. The 2026/27 nil-rate band is set at £325,000 and is due to remain at that level until April 2030. An allowance of up to £175,000 may apply if a main residence is left to direct descendants which could take this up to £500,000.
Pension schemes may see an increased responsibility in terms of ensuring they provide the relevant information to Personal Representatives in a timely manner to ensure the correct tax is paid. HMRC is expected to produce further guidance ahead of the April 2027 changes.
Excepted group life assurance schemes are not classed as registered pension schemes and fall outside of the legislation.
Employers, with support from advisers and pension providers, should ensure pension scheme members are aware of the potential impact on their funds and payments to beneficiaries.
Signposting them to relevant guidance will be key although the details on how this will be actioned are yet to be published.
TPR publishes DC landscape data and urges small DC schemes to consolidate
In March 2026, the Pensions Regulator published its annual statistical overview of the DC occupational pensions landscape. The analysis shows that:
- The number of DC schemes (including hybrid schemes) continues to decrease, with 790 non-micro (12+ members) schemes remaining. The greatest reductions were in schemes of under 5,000 members.
- Membership of non-micro and hybrid schemes increased to 32.8 million members in 2025, 65% of whom are deferred members. Master Trusts now hold 92% of DC memberships.
- DC scheme assets (excluding micro and hybrid schemes) have grown by 22% to £249 billion in 2025, of which £208 billion were in master trusts.
- Assets per membership increased from c. £7k to c. £8k per member in 2025.
TPR followed this up with a blog which noted that the trend of consolidation in the DC market towards fewer, larger schemes was continuing at pace and that it believes these schemes compare favourably and can provide stronger performance and improved member experiences than their smaller counterparts. Smaller schemes are urged to strongly consider whether consolidation into a larger scheme would be in members’ best interests as governance responsibilities and regulatory expectations continue to rise as the measures in the Pension Schemes Act come into effect.
To support trustees of smaller schemes, now defined by TPR as schemes with fewer than 5,000 members, TPR has also published new guidance covering selecting and transferring to a master trust. The guidance sets out TPR’s expectations around factors that trustees should be considering when making these decisions.
Quick updates
- In March 2026, the Government published data-led analysis of decumulation options available in occupational DC pension schemes. The analysis noted that Uncrystallised Funds Pension Lump Sum (UFPLS) was the most widely available option (for 43% of schemes and 98% of members) and most popular with 44% of member withdrawals, followed by drawdown (available for 16% of schemes and 43% of members). There were 43% of schemes offering no decumulation products at all, but this covered only 1% of total membership, indicating these were among the smallest of schemes.
- In January 2026, the DWP confirmed that upcoming guidance on trustees’ fiduciary duties will clarify how wider considerations can be taken into account within existing legal obligations. This will include trustees’ ability to consider system level risks, such as climate change, and the wider impacts of investments where these are relevant to members’ long term outcomes, including their standard of living.
- The Pensions Administration Standards Association (PASA) has published the first part of a four part guidance series which aims to strengthen partnerships between trustees and their administrators. The first part “sets the strategic context for the series and highlights why effective administration oversight is a core governance responsibility”.
- Data (Use and Access) Act 2025 –The Pensions Administration Standards Association (PASA) has published a short paper exploring six key areas of the Data (Use and Access) Act 2025 and what they mean in practice for pension schemes. The ICO has issued guidance to assist data controllers (ie including trustees) regarding the new legal requirement to have a formal mechanism for data protection complaints, coming into force on 19 June 2026. Under the new legislation, individuals will have the right to complain directly to data controllers about the handling of their personal data and trustees will be required to respond to complaints within strict timescales. Trustees and providers should consider any updates that may now be required to processes and their Privacy Policy.
- Development of Collective Defined Contribution (CDC) schemes continues to gather pace with the regulations for multi-employer CDC coming into force from July 2026 and the proposals in place for the development of Retirement CDCs, focused purely on decumulation, although the rollout for these may not be until 2028. The latter will give trustees an additional option to meet their imminent requirements for default retirement solutions, so there is expected to be keen interest in the development of that market.
TPR Call to Action on Pension Scams
In March 2026, The Pensions Regulator (TPR), working with the City of London Police, issued a new scam alert to more than 35,000 industry professionals. The alert warned of a significant increase in impersonation fraud, where criminals pose as scheme members to gain unauthorised access to pension accounts and divert funds.
This followed intelligence from the new Report Fraud service, showing sustained growth in this type of fraud, which has resulted in significant losses of members’ pension savings, with over £17m lost in 2024.
The Fraud Minister, Lord Hanson, has since urged trustees and providers to use every touchpoint with members to reinforce scam-awareness messaging. Whilst impersonation fraud has seen a notable increase, other pension scam methods continue to target savers, including the creation of fraudulent duplicate accounts, fraudulent death claims, and the exploitation of weak credentials or security controls.
In April 2026, a new Online Crime Centre was established, bringing together specialists from government, law enforcement, intelligence agencies, banks, mobile networks and major technology firms, to identify and disrupt global fraud networks. This forms part of a new national fraud strategy, which outlines how the government will tackle organised fraud and protect the public, supported by £250 million of investment over the next 3 years. The Centre will focus on identifying and blocking the accounts and contact details used by fraud networks. Its introduction has been welcomed by the pensions industry, following long-standing calls for improved inter-agency co-ordination to help safeguard members’ savings.
Actions
- Review scheme systems and controls – Review the measures you/your provider have in place, including member identity verification and authentication checks.
- Educate members - Signpost members to the Pension Scams Action Group’s ScamSafe Leaflet and the Government’s Stop! Think Fraud website, which provide practical guidance on protecting against pension scams.
- Report – Report any suspicious activity promptly to Report Fraud at reportfraud.police.uk.
Employment Rights Act 2025
Adding to and amending the Employment Rights Act 1996, the Employment Rights Act 2025 became law on 18 December 2025. Changes will take place in 2026 and 2027. Highlights which could impact employee benefits include:
- Paternity and Unpaid Parental Leave available from day 1 of employment
- Statutory Sick pay (SSP) payable from day 1 of sickness rather than day 4 and the earnings threshold has been removed
- Gender pay gap and menopause action – from 6 April 2026, employers of all sizes can choose to report on action relating to gender pay gaps and menopause
- Increased pregnancy and maternity rights with rules to strengthen against dismissal for pregnant workers and those returning from maternity leave
- Unpaid bereavement leave to be a statutory right
- Zero hours and low-hours contract workers rights to guaranteed working hours if requested
There are a number of other employer focussed changes, which are not covered above and due to be introduced over 2026-27. The Government has produced a factsheet providing an overview on the key elements.
FCA simplified advice consultation
The FCA is consulting on changes to make it easier for firms to offer more streamlined financial advice.
The focus is on helping consumers with straightforward needs, without requiring a full assessment of their entire financial situation - improving accessibility and affordability.
While this type of advice is already permitted, it has seen limited use.
The FCA is therefore looking to remove practical barriers, while maintaining consumer protection and encouraging greater innovation.
What’s changing?
The proposals focus on simplifying the existing framework, rather than introducing a new regime:
- Simpler, more consistent rules: Bringing together existing suitability requirements into a single framework.
- A more proportionate advice process: Clarifying that “sufficient” information is enough to support recommendations, enabling more targeted advice.
- Clearer client communications: Encouraging shorter, more focused suitability reports.
- Greater flexibility in ongoing advice: Moving away from annual reviews towards a needs-based, periodic approach.
Alongside this, the new targeted support regime (from April 2026) allows firms to make suggestions to groups of customers with similar characteristics, sitting between guidance and full advice.
What this could mean for DC schemes?
- Scalable member support: Simplified advice and targeted support could help close the “advice gap”, particularly for members with smaller pots or straightforward needs.
- Increased provider innovation: Providers and master trusts may develop new support services, especially at and into retirement.
- Blurring of advice boundaries: The distinction between guidance, targeted support and advice becomes less clear - increasing the importance of clear member communications.
- Greater focus on member segmentation and outcomes: These models rely on better use of data and member segmentation, alongside stronger oversight under Consumer Duty.
Quick updates
- The Pensions Dashboard programme continues to progress and there have been no changes to the statutory deadline of October 2026 for all schemes in scope to connect. Over three-quarters of pension records are now connected, with connection prioritised according to scheme size and type. The testing phase has already commenced and it is possible to be involved in that process by contacting the Money and Pensions Service. More information can be found on their website.
- The Pensions Minister, Torsten Bell, stated in an answer to a Parliamentary question in January 2026 that The Pensions Commission is expected to publish its final report in the first half of 2027 – the interim report was published on 19 May. The Pensions Commission was launched in July 2025 to explore the long-term questions of adequacy and retirement outcomes.
- In response to a parliamentary petition that asked for ‘clear, enforceable standards for faster, electronic pension transfers’, the Government noted that it is considering ‘how to improve the pension transfer process while maintaining strong member protection’ and had been working with the industry to correct some unintended consequences that resulted from the Conditions for Transfers regulations introduced in 2021. The Department for Work & Pensions is planning to issue a consultation on the outcome of this work ‘in the coming months’.
- In March 2026, the FCA set out its priorities for the pensions market, with a clear focus on improving outcomes in contract-based DC. The key themes are straightforward - driving value for money, improving member support, supporting investment and innovation, and modernising the system. Overall, the direction is clear: a stronger focus on outcomes, with more flexibility in how firms deliver them.
- Since 2 March 2026, firms have been able to apply for permission from the FCA to provide targeted support services, with successful applicants able to provide these from 6 April 2026. Targeted support will sit in the gap between guidance and regulated advice and will allow appropriately regulated firms to make ready-made suggestions to groups of consumers who share common characteristics.
- The Government has published a call for evidence on the Transfer of Undertakings (Protection of Employment Regulations 2006 (TUPE). The Government intends to use this to inform its planned updates to these regulations to both facilitate smoother merger and acquisition activity and strengthen existing rights and protections for workers. The call for evidence asks about the extent to which pension rights are sufficiently protected under TUPE, and closes on 1 July 2026.
- MoneyHelper, the free Government guidance service on money and pensions, has updated its guidance on helping individuals plan how to take their pension benefits. The new content suggests various steps members should consider taking, signposts to other resources such as the State Pension forecaster and Pension Wise, and urges members to take care if they are pressured or unsure.
- The Government has committed to introducing mandatory ethnicity and disability pay gap reporting for employers with 250+ employees. Requirements are due to include 6 key pay-gap metrics and new workforce composition data. Legislation has been drafted, setting out how this is expected to work and has been produced in collaboration with employers who already report on this area and will build on the existing Gender Pay Gap reporting. In addition to legislation the Government is looking at a range of guidance and practical tools to support employers including communication templates.
- The Pensions Policy Institute published its third instalment of the series ‘From Payslip to Pension’ in January 2026, considering persistent low earners and associated risk factors (e.g. working part time, which is more likely to affect women), profiles for low earners including working patterns and home circumstances, and a focus on retirement outcomes for these profiles and if they are on track for an adequate retirement. The outcome of the report shows a strong link between retirement income adequacy and having low housing costs e.g. no or low rent and / or dependence on partners. There could also be a full reliance on the State Pension.
- The Government highlighted improvements to pensions for women in local government, coming into force in April. This includes making gender pension gap data reporting mandatory and unpaid additional maternity leave, shared parental and adoption leave pensionable. The Government is also looking at collecting data to understand why people opt out of the pension scheme to help as many benefit from membership as possible.
DC default investment strategies in 2025
In conjunction with Howden, we have produced our latest report analysing 28 default arrangements used across master trust, contract-based and bundled own trust schemes, covering around £500bn in assets and over 30 million members.
Benefits IQ Benchmarking Survey
Designed to provide robust, independent insights to help HR and Reward teams make informed, strategic decisions, providing your organisation with a scorecard that ranks your benefit offering against all the other companies that participate. This is free of charge and takes around 15 minutes to complete.
By participating in the survey, you’ll gain access to benchmark data that will help you:
- Understand how your benefits compare with peer organisations
- Identify priority areas for improving attraction, retention and engagement
- Build a stronger evidence based business case for leadership, supported by independent comparative insight
REBA webinar
Looking to take your company’s benefits programme to the next level in 2026?
Our colleagues at Howden recently hosted a webinar exploring their latest research with Reward & Employee Benefits Association (REBA), turning their findings into actionable steps you can use in every step of your programme design process – from defining the right KPIs, measures and objectives before you start, through to leveraging stakeholder engagement, technology and AI in your review process at the end.
The corporate pensions paradox
Employees are confident about retirement, but many are not actively planning for it. We explore what this means for employers and workplace pension governance in our latest research report.