The Pension Schemes Bill 2025, which was issued on 5 June, contains significant proposals for both defined benefit (DB) pension schemes and defined contribution (DC) schemes.
The bill contains several proposals to improve pensions from DC schemes. These proposals do not increase the contributions going into schemes, or the amount of tax relief from the government. However, the proposals make some second order changes that could be beneficial.
The government has a view that larger assets under management will allow reduced fees, enhanced diversification, and the ability to invest in asset classes such as infrastructure and private equity. Consequently, the bill contains proposals to scale up the size of DC default funds by 2030.
The proposal works through the automatic-enrolment pension structure, where employers are legally obliged to provide staff pensions. Authorised DC schemes may only be used to meet these automatic-enrolment obligations where the default fund of the scheme exceeds £25 billion in value.
In association with this proposal for scale, the bill also contains power for government regulators to mandate minimum allocations in government selected asset types, including a focus on UK-based investment.
Perhaps foreseeing the potential for legal dispute, some concerns have been expressed about mandated asset allocation, on behalf of commercial DC scheme providers and trustees. The concern is that statutory asset allocation may conflict with providers’ and trustees’ existing legal duties to pension scheme members.
Those existing legal duties are currently managed through a well-understood legal framework that limits the likelihood of member complaint, because providers and trustees invest prudently in members’ interests. Investment in accordance with a government-set allocation mandate may expose providers and trustees to legal claims if the eventual results are disappointing.
The bill also introduces several housekeeping measures, such as a value-for-money framework for DC schemes, automatic consolidation of small DC pots to ensure individuals at least keep what they have saved, and improved default arrangements to be put in place at retirement.
Regarding proposals for DB schemes, there will be a statutory power for trustees to modify scheme rules, enabling surplus distributions to the employer, where this is otherwise not provided for in the scheme rules. Trustees will, however, remain the guardians of funding and will need to be satisfied that any deal to distribute surplus to employers is in the interests of their scheme members.
David Griffiths is a pensions and incentives partner at Keystone Law