Value For Money "The Centrepiece", As Government Outlines Next Steps For Pensions Reforms

The Government today published the promised update to its workplace pensions roadmap. Various associated documents were published alongside, including:

• a further consultation on DC value for money (VFM); and
• papers covering DC scale, guided retirement and member payments from DB surplus.

None of the documents signals any fundamental change in policy. There are however some notable points as to timing. Implementation of the new VFM framework, originally scheduled for 2028, is to be phased over 2028 and 2029. And the launch of guided retirement has been pushed back by two years, with the Government now targeting 2029 and 2030.

Key points are summarised below.

The pensions roadmap

The roadmap outlines planned steps and dates for proposed pensions reforms, including those provided for in the Pension Schemes Act 2026 (PSA26). There are timelines for DC and DB schemes respectively.

Many of the target implementation dates are the same as in the previous (August 2025) version of the roadmap. However, there are several changes:

• VFM: The new framework will be phased in, as explained below.
• Guided retirement: The Government now plans for the new requirements to apply to master trusts and group personal pension schemes (GPPs) from Q3 2029, and to own-trust schemes from Q3 2030.
• Retirement CDC (R-CDC): The target for launch of the proposed R-CDC regime is Q3 2030. The deadline for guided retirement compliance may be extended for schemes which plan to use R-CDC as a default solution.
• DB surplus flexibilities: As indicated in the June 2026 consultation, the proposed implementation date is April 2027 – ahead of the original "late 2027" target.
• Superfunds: The Government plans to implement the new regime "later in 2028", rather than in April 2028 as previously proposed. The postponement is in part to ensure that "market developments" can be considered.

VFM

The joint consultation published today by the Financial Conduct Authority sets out "final proposals" for the new VFM framework, which will apply to default arrangements under workplace schemes. The consultation documents include draft FCA rules, and draft regulations under PSA26 for trust-based schemes.

Changes now proposed include the following:

• Past investment performance will be measured using a geometric averaging approach which tracks typical member experience over time, rather than an arithmetic averaging approach. The five years to retirement (YTR) data point will be removed, because with the new approach it is no longer needed.
• As proposed in the previous consultation, metrics will include potential future investment returns and risks. However, the FCA no longer proposes that providers/trustees should obtain third-party advice on forward-looking metrics. Instead, they will be required to disclose the underlying assumptions.
• A more sophisticated approach to peer-group comparison is proposed. For the 0 YTR cohort, the comparison will depend on an arrangement's decumulation target (eg annuity purchase or drawdown), the relevant comparators being arrangements with a similar target. For the 30 YTR cohort, the comparison will, as previously proposed, be with the full commercial comparator group.
• The FCA tentatively proposes that VFM data submitted in March should not be made public until November, by which time schemes will have published their VFM assessments.
• Implementation will be on a phased basis. In 2028:
  • The requirement for full VFM assessments and ratings will apply only to a subset of arrangements: non-bespoke arrangements under master trusts and GPPs, and arrangements within large (50,000+ member) own-trust schemes.
  • Smaller own-trust schemes and bespoke and legacy arrangements will be required only to submit data to the FCA/The Pensions Regulator.
  • There will be no mandatory actions for arrangements found not to offer value, although providers/trustees will need to consider obligations under the consumer duty/trust law as appropriate.
• From 2029 onwards, full VFM assessments and ratings will be required for all in-scope arrangements, and there will be mandatory actions for arrangements found not to offer value.

The consultation closes on 1 September 2026. The DWP will publish a response and final regulations by January 2027. For contract-based schemes, the FCA will publish a policy statement and final rules in Q1 2027.

DC scale

A discussion paper published today outlines the Government's thinking as to key concepts for the purpose of the "minimum size" requirement, which will apply to master trusts and GPPs from January 2030.

By way of reminder, under PSA26, in-scope schemes, if used for auto-enrolment, will have to be approved either in respect of a main scale default arrangement (MSDA), or as qualifying for pathway relief. For a scheme to obtain MSDA approval, the value of relevant assets will have to be at least £25 billion. Relevant assets are:

• the scheme's assets which are subject to its MSDA and which are managed under a "common investment strategy"; plus
• the assets of "connected" master trusts and GPPs which are subject to the same MSDA and which are managed under the same common investment strategy.

Much of the relevant detail is to be dealt with in regulations, including the meanings of "common investment strategy" and "connected".

The discussion paper indicates as follows:

• The MSDA will be the relevant scheme's default arrangement. It need not be the only default arrangement, but the expectation is that schemes will not operate additional default arrangements without good reason.
• The MSDA can include the assets of connected master trusts and GPPs (see below), but not unconnected schemes, stakeholder schemes or own-trust schemes. The Government is considering whether, within those rules, there should be scope to include the assets of other types of arrangement (eg bespoke default arrangements or self-select funds).
• The "common investment strategy" definition will allow for variance on grounds of age, to accommodate lifestyling and target-date strategies. Subject to that, there will be a common investment strategy only if assets are allocated in the same proportions to the same investments for all members.
• Schemes will be deemed to be "connected" only where they sit within the same corporate group.

The Government is seeking industry views on these matters. The closing date for responses is 7 September 2026. The Government will consult on draft regulations in 2027.

Guided retirement

A policy paper published today outlines key principles and expected outcomes for "default solutions" under the proposed guided retirement regime.

Default solutions are arrangements for making pension payments for retiring DC members who do not choose an available alternative. PSA26 includes requirements for the trustees of occupational pension schemes to put default solutions in place. The FCA will make corresponding rules for GPPs.

Four principles are set out in the policy paper:

• No requirement for complex decisions by members. For most members, the only decision required will be when to access their benefits, and whether to "remain in the default solution" or choose an alternative.
• Protection against longevity risk. Default solutions must provide an income which lasts throughout retirement. There will be scope for trustees/providers to decide how to achieve this, so default solutions could include different phases, such as "flex then fix".
• Freedom of choice. Some members will want to make their own decisions. Freedom to do so will not be eroded. The Government is committed to ensuring that appropriate support will be available, including via Pension Wise and targeted support where applicable.
• Consent. Members have to engage with schemes in order to access their benefits. At that stage, trustees or providers will "fully explain" the default solution, and will outline the alternative options. This is the "key consent moment" – members will "need to agree to start receiving payment via the default solution". If the solution includes different phases, members should be informed at the outset and periodically afterwards about their options, but schemes will not be expected to seek consent multiple times.

These principles will shape the detailed framework for guided retirement, including regulations under PSA26 and FCA rules. The Government will consult on policy in Q4 2026.

Member payments from DB surplus

HM Revenue & Customs published today a proposed change to tax legislation to cater for lump sum payments to members from DB surplus, and an explanatory policy paper.

The proposed change provides for a new type of authorised payment for tax purposes – an "authorised member surplus payment" – as announced in the Autumn 2025 Budget.

Broadly speaking, a payment made by an ongoing DB scheme will be an authorised member surplus payment if:

• the decision to grant the payment was made at the discretion of the trustees;
• the payment is made to a member who has reached normal minimum pension age or meets HMRC's ill-health condition, or to a dependant following the death of the member; and
• the payment would have been an authorised employer surplus payment (see below) if it had been made to the employer. 

An authorised member surplus payment will be taxable as pension income in the hands of the recipient.

To avoid confusion, the term for authorised payments to employers from DB surplus will be changed to "authorised employer surplus payments".

The proposed change will be made via the 2026 Finance Bill, and will come into force when the Bill receives royal assent.

Comment

A Government press release describes the new VFM framework as "the centrepiece" of its pensions reforms. Today's further consultation brings the launch of the framework a step closer, with some welcome concessions which recognise the initial challenges for providers and trustees. However, the FCA has declined to give ground on some of the controversial elements of the framework – for example, the fact that (leaving aside the easement for 2028) an arrangement with an amber rating will have to close to new employers unless and until value is restored.

The papers on DC scale and guided retirement are light on detail. But from the latter it appears that the "default" regime will operate as many had predicted. In other words, the default solution chosen by a scheme's trustees or provider will be implemented only for members who consent; but forms and processes will be constructed in such a way that members who elect to retire thereby give the requisite consent unless they choose an alternative option. That much may now be clear, but there are many unresolved questions as to guided retirement, not least whether R-CDC will prove to be part of the solution. In the circumstances, pushing back the proposed implementation dates was the only sensible course of action.