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The Pension Schemes Act 2026 received Royal Assent on 29 April 2026. It is a significant piece of legislation, which sets a statutory framework and agenda for legislative reform of private sector pension schemes over the next five years and beyond.
We take a look below at the main provisions of the Act and how these will affect defined benefit and defined contribution arrangements in the private sector, together with the expected implementation timeline for each area.
Defined benefit schemes
Treatment of surplus
New provisions will allow trustees to amend their scheme rules to permit the payment of surplus to a sponsoring employer while the scheme is ongoing. Separate regulations will set out the funding threshold that will need to be met (which is expected to be the low dependency funding basis) and other payment conditions.
The government also intends to include provisions in the next Finance Bill to permit the payment of surplus lump sums to members over normal pension age (a measure which should assist trustees in the sharing of surplus funds).
Indicative timeline: spring 2027 (with regulations and guidance from the Pensions Regulator (TPR) prior to then).
Remediation of potentially defective changes in light of Virgin Media case
The Act provides a statutory remedy for trustees of formerly contracted-out schemes where amendments made between 1997 and 2016 failed to meet the requirement to obtain an actuarial confirmation that the scheme continued to meet the statutory reference scheme test. Without legislative intervention, scheme amendments may have been void in light of the Virgin Media v NTL Pension Trustees case and scheme liabilities potentially higher.
The remedy allows trustees to seek actuarial confirmation to retrospectively validate potentially remediable alterations, with the scheme actuary being asked to confirm that the historic change would not have prevented the scheme from continuing to meet the statutory reference scheme test. The solution is not available where legal proceedings regarding the validity of an amendment were issued on or before 5 June 2026.
Further details on the steps that trustees should be taking can be found here.
Indicative timeline: remedy available from 29 April 2026 (with accompanying actuarial guidance already in place).
Superfunds
The Act establishes a statutory framework for the authorisation and supervision of defined benefit superfunds. It replaces the interim measures previously put in place by TPR.
The changes include a simplification of the gateway tests that schemes need to meet before transferring to a superfund, the regulatory approval process switching to a trustee lead process (rather than sponsor lead) and TPR having an expanded role and new powers for non-compliance.
Indicative timeline: new regime expected to apply from 2028 onwards (with further regulations and updated guidance from TPR due prior to then).
Defined contribution schemes
Minimum scale requirements for Master Trusts and Group Personal Pensions (GPPs)
All defined contribution multi-employer Master Trusts and GPPs used for auto-enrolment will need to have a "main scale default arrangement" with at least £25bn of assets under management by 2030.
Schemes with at least £10bn of assets can apply for approval to follow a "transition pathway", provided they can demonstrate that they have a deliverable plan to reach £25bn by 2035.
Indicative timeline: 2030 at the earliest (with separate regulations and guidance required from TPR).
Value for money (VFM) framework
The Act introduces a new VFM framework for defined contribution trust based schemes (including defined contribution benefits in hybrid schemes), with the emphasis now on a value assessment (rather than just cost).
Trustees will be required to undertake periodic VFM assessments against prescribed metrics, publish their assessments and notify TPR of the same.
It is expected that separate regulations will set out requirements to put in place improvement plans for underperforming schemes, which may ultimately result in schemes transferring to alternative (better run) arrangements with TPR's approval.
Indicative timeline: new regime expected to apply from late 2026 / early 2027 (with separate regulations and guidance from TPR due prior to then).
Framework for small dormant pot consolidation
The Act also sets out a framework for the consolidation of small dormant pension pots within defined contribution schemes used for auto-enrolment.
Under the reforms pension pots of £1,000 or less which have been inactive for 12 months will be automatically transferred to a consolidator scheme, thereby removing an administrative burden for auto-enrolment schemes. Consolidator schemes will be authorised by TPR or the FCA.
Indicative timeline: 2030 for commencement of consolidation process (with regulations and regulatory approval of consolidator schemes prior to then).
Guided retirement duty
Trustees of occupational defined contribution schemes will be under a new duty to offer one or more default retirement solutions to provide regular retirement income for members. This obligation will apply in respect of active, deferred and pensioner members.
The Act sets out what trustees must consider when designing their default retirement solution and leaves open the possibility of transferring members to another qualifying scheme (subject to consent) where an in-scheme solution is not reasonably practicable or a better outcome for members can be provided elsewhere.
Indicative timeline: 2027 for defined contribution Master Trusts and 2028 for other defined contribution schemes (with separate regulations to be published in advance).
Asset allocation mandation power
The government's asset allocation mandation power survived the transition of the Bill becoming an Act.
It enables the government to require defined contribution Master Trusts and GPPs authorised for auto-enrolment purposes to hold a prescribed limit of up to 10% of their main default funds in "qualifying assets" (broadly private equity, venture capital, private credit and interests in land, infrastructure and unlisted equity securities) of which up to 5% can be UK-specific assets.
The power can only be exercised from 1 January 2028 and only then if specified conditions are met. The power will fall away if it has not been exercised by 2032.
Indicative timeline: the power can only be exercised once between 2028 and 2032.
Our comment
After a long journey the Pension Schemes Act 2026 has finally made its way onto the statute books. Although a lot of the detail will be fleshed out in subsequent regulations and guidance, the Act provides a roadmap for legislative reform of private sector pension schemes in the immediate future.
For defined benefit schemes, the reforms to the treatment of surplus and remediation of potentially defective historic changes to contracted-out schemes will be welcomed news. The new statutory framework for defined benefit superfunds and relaxation of some of the entry requirements will likely result in renewed interest in superfunds from trustees and sponsors of certain schemes as part of their endgame planning.
For defined contribution schemes, the cumulative effect of the measures in the Act arguably represent the most significant reform of defined contribution arrangements since the advent of auto-enrolment. It is clear that the changes will result in consolidation in the defined contribution market. What is less clear is whether the reforms will genuinely deliver better outcomes for members or whether further work is needed to address pensions adequacy in retirement.
If you require assistance in complying with these changes or if you wish to discuss your scheme more generally please get in touch with your regular pension team contact.
This article is for general information only and reflects the position at the date of publication. It does not constitute legal advice.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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