The Pension Schemes Act 2026 - A Summary of Key Changes

Following an extended period of parliamentary “ping‑pong” between the House of Lords and the House of Commons, the Pension Schemes Bill has now received Royal Assent. It came into force on 29 April 2026 as the Pension Schemes Act 2026 (the “Act”). The Act introduces wide‑ranging reforms across the pensions landscape, which are due to be implemented on a phased basis. In this blog, we highlight the key changes affecting defined benefit (“DB”) and defined contribution (“DC”) schemes.

Virgin Media Remediation Power

Between April 1997 and April 2016, UK pension schemes were permitted to “contract out” of the additional state pension, generating National Insurance saving for their employers, provided their members were offered a minimum level of benefits equivalent to a prescribed reference scheme. Any amendments made to scheme benefits after the scheme had contracted out were required to be supported by written actuarial confirmation that the amended benefits continued to satisfy the reference scheme test.

As explored in previous blogs, the trustees and employer under one of the Virgin Media pension schemes could find no such actuarial confirmation for a change they had made in 1999, and asked the High Court and then the Court of Appeal in England for a ruling. The courts' unexpectedly literal and strict interpretation of this legal requirement, which found that amendments would automatically be void if the correct procedure had not been followed,has proven troublesome for some schemes.

With effect from 29 April 2026, trustees, scheme managers and governing bodies of affected schemes, namely those which did not obtain the required actuarial confirmation at the time of amendment, will now be able to retrospectively validate amendments which are considered to be remediable by following a statutory process. This process, which we will explore separately in a further blog, will require actuarial input, including an opinion as to whether the relevant amendment would have satisfied the applicable requirements at the time it was made.

DB Surplus and Use of Excess Assets

The Act introduces a new statutory framework enabling defined benefit schemes, subject to prescribed safeguards, to make use of surplus assets where funding levels permit. This reflects a policy intention to provide trustees and employers with greater flexibility to deploy surplus funds, even where existing scheme documentation forbids it, for the good of the economy, while maintaining appropriate protections for members’ accrued benefits.

The Act itself establishes only a high‑level enabling power. The precise conditions under which surplus may be used — including funding thresholds, trustee decision‑making requirements and any limits on permitted uses — are expected to be developed through consultation and set out in secondary legislation later in 2026 or in 2027.

Value for Money Framework

The Act introduces a requirement for trust‑based DC schemes to operate in accordance with a value for money (“VFM”) framework, mirroring comparable FCA‑imposed requirements for contract‑based schemes. Under the new framework, trust‑based occupational pension schemes may be required to assess their performance annually against VFM ratings, with relevant data to be benchmarked against comparable schemes. Schemes will also be required to publish their metrics to facilitate ongoing comparison across the market. Further detail on the operation of the framework is expected to be set out in regulations due in 2026/27, with the first VFM assessments anticipated to take place in 2029.

DC Megafunds – Requirement for Scale

The Act introduces a new scale requirement for defined contribution multi‑employer schemes operating a main‑scale default arrangement. To continue to qualify for automatic enrolment contributions, those schemes must hold at least £25bn in total assets by 2030, resulting in a “Megafund”. Recognising that some schemes may struggle to meet this threshold, the Act provides alternative pathways for schemes that can demonstrate a credible plan to achieve scale. This includes either holding at least £10bn in their main‑scale default arrangement by 2030 or offering an innovative product design to the market.

Mandatory Investments for DC Schemes

One of the most contentious aspects of the Pension Schemes Bill during its passage through Parliament was a proposal to give Government powers to mandate DC pension scheme investments. The final compromise allows the Government to compel schemes to invest in certain asset classes aimed amongst other things at boosting investment in private markets, but only where this is subject to a “savers’ interest test”. This safeguard enables trustees and schemes to challenge any direction that they consider not to be in savers’ interests. The government's power is subject to a sunset clause whereby it may not be exercised after 2032 and will be fully repealed in 2035.

These constraints reflect the political compromise reached, balancing the Government’s policy aims against concerns about trustee fiduciary duties and investment autonomy.

Small Pot Consolidation

To address the growing number of small pension pots, the Pension Schemes Act introduces a new consolidation mechanism under which defined contribution pots of less than £1,000 that have received no contributions in the preceding 12 months will be automatically consolidated into one of a number of default consolidator schemes. The aim is to improve efficiency and make pension savings easier for individuals to manage and access at retirement. It is anticipated that default consolidator schemes will take the form of high‑performing master trusts meeting prescribed criteria and selected by the government. Implementation has been deliberately deferred to align with the rollout of DC Megafunds. Regulations are expected to be introduced in 2027/28, with a target implementation date of 2030.

Other Changes

In addition to the headline reforms outlined above, the Pension Schemes Act 2026 introduces a range of further measures affecting scheme governance, consolidation and benefit delivery across the pensions landscape.