HL UK Pensions Law Digest 9 June 2025

Welcome to our latest update, in which we cover: 

• Pension Schemes Bill 
  • The Bill has been introduced in Parliament. See below for an overview of what it contains; 
• DWP Roadmap 
  • An outline of the government’s strategy and timeline for private sector pension reform, including proposals not covered in the Bill; 
• Welcome relief on Virgin Media 
  • The DWP has announced a legislative solution to schemes’ Virgin Media uncertainties; 
• Pensions Regulator (TPR): endgame guidance 
  • Detailed guidance from TPR on options available to trustees of defined benefit (DB) schemes, including alternatives to buyout;
• Pensions Regulator (TPR): changing nature of trusteeship 
  • A speech from TPR sets out its vision for raising standards of pension trusteeship, plus greater scrutiny of scheme administration. 

Pension Schemes Bill 2025: At a glance

The long-awaited Pension Schemes Bill was introduced in Parliament on 5 June 2025. Many of the provisions are no surprise, as they will give legal effect to proposals which have been long promoted by this and the previous government. 

On the same day, the DWP published a Roadmap, setting out the expected timeline for the various reforms on the pension industry’s horizon.

The Bill is expected to receive Royal Assent and become an Act in 2026.

Below is a high-level overview of the various reforms in the Bill and the current expected time for their implementation, taken from the Bill or (where relevant) the Roadmap. 

Power to pay surplus to employers 

• Provisions to enable trustees to amend scheme rules to pay surplus to an employer from an ongoing scheme, provided the scheme is not in winding up and certain conditions apply. 
• Detailed requirements will be set out in regulations, which are expected to come into force by the end of 2027. 

Value for Money Framework 

• Regulation-making powers to introduce a Value for Money (VFM) Framework for occupational pension schemes in scope. 
• The regulation-making process is expected to take place in 2026/27, with first VFM data to be published in 2028. 

Consolidation of small pots

• Regulation-making powers to require small defined contribution (DC) pots (£1,000 or less) to be transferred automatically into an authorised consolidator. 
• The regulation-making process is expected to take place in 2027/28, with small pots transfer duties to come into force in 2030. 

Minimum size and asset allocation requirements for defined contribution (DC) default funds

• Provisions to require Master Trusts and personal pension schemes used for auto-enrolment to: 
  • Have a main scale default fund of at least £25bn, or be on track to reach this size, unless an exemption applies; and 
  • Invest at least a prescribed percentage of their default funds in “qualifying assets”. A qualifying asset will be defined in regulations and may include private debt or equity, venture capital or land, and may specify UK assets. 
• The DWP Roadmap (also published on 5 June 2025) explains that the power to set mandatory investment targets will only be used if industry change does not happen voluntarily, as envisaged by the Mansion House Accord. 
• Regulations under these provisions may not come into force before 1 January 2030. 

Contractual override for contract-based schemes 

• A statutory power will be introduced to enable contract-based schemes to transfer a member’s funds to another scheme without consent, subject to meeting a “best interests” test and various other safeguards. 
• This power is expected to come into effect in 2028.

Default retirement pathways

• Defined contribution (DC) occupational and personal pension schemes will have to: 
  • Provide one or more “default pension benefit solutions”, intended to give a regular income for eligible members in retirement; or 
  • Transfer eligible members to another scheme which provides an appropriate pension benefit solution. 
• Regulations may exempt certain types of pension scheme and members from the requirement and may set out additional conditions which must be met. 
• The process of making regulations (for occupational pensions) and rules (for personal pensions) is expected to take place in 2026/27. 

Superfunds 

• Provisions set out a framework for the authorisation and regulation of occupational pension scheme defined benefit (DB) superfunds. 
• Consultation on superfund regulations is expected in 2026, with the legislation and a Pensions Regulator Code coming into force in 2028. 

Pensions Ombudsman is a competent court 

• Current legislation provides that overpayments cannot be recovered through setting off against future pension instalments where there is a dispute as to its amount, unless the obligation to repay has become enforceable under an order of a “competent court”. 
• Existing legislation will be amended so that offsetting can also be used where the amount owing has been determined by the Pensions Ombudsman. 
• These provisions will come into force two months from the day on which the Bill is passed as an Act. 

PPF / FAS benefits: terminal illness 

• The definition of terminal illness for the purposes of compensation from the Pension Protection Fund (PPF) and the Financial Assistance Scheme (FAS) will be amended, so that compensation may be payable where a person’s life expectancy is less than 12 months, rather than the current six months. 
• These provisions will come into force two months from the day on which the Bill is passed and becomes an Act. 

Pension Protection Fund (PPF) levies

• The rules governing PPF levies will be relaxed so that: 
  • The PPF Board will have discretion whether or not to impose a risk-based levy (currently a risk-based levy must be set each year); 
  • Where the Board decides to impose a risk-based levy, it may also decide to impose a scheme-based levy in respect of some or all eligible schemes; 
  • The Board will be able to set a low (or zero) levy and raise the levy more substantially in subsequent years. 
• When setting the risk-based levy, the PPF may also take into account risks posed by schemes “not supported by a substantial employer covenant”, in addition to risk factors currently set out in legislation. 
• Any substantial changes the PPF Board decides to make to the levy are expected to come into force for the financial year which begins after the Bill receives Royal Assent (so changes are likely apply from the financial year starting April 2027, at the earliest).

Pension dashboards

• Provisions will enable the Money and Pensions Service (MaPS) dashboard to provide information about compensation under the Pension Protection Fund (PPF) and the Financial Assistance Scheme (FAS). 
• Regulations may require commercial dashboards to show information about PPF / FAS benefits. 
• These provisions will come into force on the day the Bill is passed and becomes an Act. 

Local Government Pension Scheme (LGPS) 

• The Secretary of State will have power to make regulations concerning asset pooling of LGPS funds and about how LGPS funds are managed. 

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DWP Roadmap 

Alongside the introduction of the Pension Schemes Bill, the DWP issued a Roadmap, to bring together the various reforms already proposed into a single strategy for delivering a private sector pension system fit for the future. 

Timescale of reforms 

• We have included comments on the intended timescale for the different reforms in our overview of the Pension Schemes Bill above. The Roadmap emphasises that the timescale should not be taken as precise timing, but rather indicates the intended sequencing of the various changes. 
• It also reminds readers that consultation on regulations to be made under powers in the Bill must wait until the Bill receives Royal Assent and becomes an Act. The earliest time for consultation on draft regulations is therefore likely to be mid-2026. 
• In relation to defined contribution (DC) schemes, the government sees 2030 (when the minimum default size will apply) as a watershed date. The Value for Money (VFM) provisions, default retirement solutions, and the contractual override are intended to reshape the DC market before the 2030 minimum size provisions come into force.
• Small pots consolidation is intended to have effect once the market of a smaller number of DC megafunds has developed. 

Future reforms outside the Pension Schemes Bill 

• The government intends to launch the second phase of the Pensions Review in the “near future”, focussing on the adequacy of retirement incomes and the balance of the three pillars of the UK system: state benefits; occupational pensions and personal wealth. 
• Separate from the Pensions Review, the government is continuing to consider the possible role for a public defined benefit (DB) consolidator, run by the PPF. 
• In relation to collective defined contribution (CDC) arrangements: 
  • Regulations will be laid in autumn 2025 and come into force in 2026 to allow multiple unconnected employers to establish a CDC scheme; and 
  • The government is exploring how to widen the options available to trustees for default retirement solutions for members, including CDC retirement-only arrangements for members with DC pots. 
• The government plans to consult on improving the governance of trust based pensions later this year.

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Welcome relief on Virgin Media

The DWP has announced that it will introduce legislation to help schemes address the ongoing issues following the Court of Appeal judgment in the Virgin Media case last year. 

The decision cast doubt on the validity of historic amendments to pension schemes which were formerly contracted-out, if the trustees could not demonstrate that they had prior written actuarial confirmation that the scheme would continue to satisfy the contracted-out test. 

New legislation will enable pension schemes to obtain retrospective actuarial confirmation that the contracting-out requirements would not be impacted by the historic benefit changes. 

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Pensions Regulator: endgame guidance 

The Pension Regulator (TPR) has published a blog and guidance on new models and options in defined benefit (DB) and hybrid schemes. 

TPR makes clear that buyout with an insurer is not the only option to consider. Instead, trustees are expected to keep up to date with developments in the endgame market and to make the right decision for the specific circumstances of their scheme and their members. 

The guidance explains various alternative models (including fiduciary management; appointment of accredited trustees; transfer to a DB master trust or DB superfund; capital-backed journey plans; buy-ins; buyouts; and longevity swaps) and sets out factors to consider when deciding the best option for a particular scheme.

In advance of new legislation on surplus extraction coming into force, TPR considers that:

• Trustees and employers may start thinking about how to generate additional surplus and release it under the reform proposals; 
• It would be good governance practice to adopt a policy on surplus extraction appropriate to the individual scheme. 

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Pensions Regulator: changing nature of trusteeship

In a keynote speech, Nausicaa Delfas, CEO of the Pensions Regulator (TPR) has set out its plans to raise standards of trusteeship. Key points include: 

• Pension trusteeship needs to come into line with expectations in other professions and with corporate governance standards, including for continuing development. 
• TPR intends to develop an assurance framework to ensure that the effectiveness of trustee boards is reviewed every two to three years. Five traits TPR considers key to good trusteeship are being: saver-focussed; open to constructive challenge; collaborative yet accountable; data-led and acting with skill and diligence. 
• TPR is concerned in particular that: 
  • Some trustees have served longer than the nine year maximum term set out for non-executive directors in the UK Corporate Governance Code; 
  • Holding multiple appointments may impede trustees from fulfilling their responsibilities properly; and 
  • Trustees’ relationships with the sponsoring employer or scheme funder may conflict with their responsibilities to members. 
• TPR is also concerned about standards of administration and plans to publish its findings from engagement with scheme administrators in August this year. 

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Authored by Jill Clucas.