Pension Schemes Act 2026: What Changed and How It Affects You

The Pension Schemes Act received Royal Assent on 29 April 2026, making it law. It is the largest reform to the UK pension system in years, affecting over 20 million workers with defined contribution pensions. Here is what the Act does, what the mandation debate was about, and what it means in practice.

What the Act Does

The Pension Schemes Act introduces several reforms designed to make the pension system simpler, more transparent, and better at delivering returns. The government estimates these changes could boost an average worker's retirement pot by up to 29,000 pounds over a career, though that figure depends on assumptions about investment performance, cost reductions, and how long savings remain invested.

The key measures fall into five areas: pot consolidation, value for money, megafunds, retirement income defaults, and the controversial mandation power.

Automatic Pot Consolidation

Most people change jobs several times during their career. Each job typically comes with its own workplace pension, and when you leave, that pot stays behind. Over a 40-year career, it is common to accumulate five, ten, or more small pension pots scattered across different providers.

The Act enables these small pots to be consolidated automatically. Instead of tracking down each old employer's pension scheme and initiating transfers manually, the system will bring small pots together into fewer, larger pots.

This matters because small pots are expensive to administer relative to their size, and savers often lose track of them entirely. The government estimates that consolidation will reduce costs and give savers a clearer picture of their total retirement savings. For anyone already tracking their pensions alongside other investments, this simplifies the picture further. Our UK pension calculator can help you project how your consolidated pot might grow.

Value for Money Framework

The Act introduces a standardised Value for Money (VFM) framework for defined contribution pension schemes. Scheme managers and trustees will need to demonstrate that they are delivering genuine value to members, not just keeping costs low.

This is a shift from the current system where employer pension decisions are often driven primarily by cost. A cheap scheme that delivers poor returns is worse for savers than a slightly more expensive scheme that invests more effectively. The VFM framework aims to make this comparison transparent and standardised.

Schemes that fail to meet the value for money standard could face consolidation into larger, better-performing funds. For savers, this means less risk of being stuck in an underperforming scheme simply because their employer chose the cheapest option.

Megafunds

The Act creates a framework for multi-employer defined contribution “megafunds” with at least 25 billion pounds in assets. The logic is straightforward: larger funds can negotiate lower fees, access a wider range of investments (including infrastructure and private markets), and build in-house investment expertise that smaller schemes cannot afford.

Australia and Canada have demonstrated that large-scale pension funds can deliver stronger long-term returns. The UK pension system is currently fragmented across thousands of small schemes, many of which lack the scale to invest in anything beyond standard public market funds.

The Act also consolidates Local Government Pension Scheme assets into pools managed by FCA-regulated managers, supporting investment in local infrastructure, housing, and clean energy.

Default Retirement Income Solutions

One of the less-discussed but practically important measures: pension schemes will be required to offer default options for turning savings into retirement income. Currently, when you reach retirement age with a DC pension, you face a complex set of choices about drawdown, annuities, and lump sums with limited guidance from your scheme.

The Act requires schemes to provide a default decumulation solution for members who do not actively choose their own approach. This does not remove choice, but it means savers who do not want to navigate the complexity will have a reasonable default rather than being left to figure it out alone.

The Mandation Debate

The most controversial part of the Act was the government's proposed power to direct how pension schemes invest. The original draft gave ministers broad discretion to require schemes to meet specific investment targets, in line with the Mansion House Accord (a voluntary agreement for schemes to invest 10% of default DC assets in private markets, with 5% allocated to UK investments).

The House of Lords pushed back repeatedly, arguing that mandating investment directions undermines the fiduciary duty of pension trustees to act in the best interests of their members. The Bill went through several rounds of “ping pong” between the Commons and Lords before a compromise was reached.

The final version scales back the mandation power considerably:

• Capped at 10% of default fund assets for private market investments, with a further 5% specifically for UK investments
• Time-limited to 2035, after which the power expires unless renewed
• Requires an independent assessment before the power can be used
• Additional safeguards proposed by the pensions industry have been incorporated

Industry reaction has been mixed. The Pensions Management Institute described the guardrails as welcome. The Association of British Insurers supports the overall package but remains concerned about the reserve power's inclusion. The Independent Governance Group noted that mandation “flies directly in the face of” effective trusteeship, though acknowledged the government had “significantly reduced its proposal.”

Defined Benefit Surplus Release

The Act also addresses defined benefit (DB) schemes, which collectively hold around 160 billion pounds in surplus. Under current rules, accessing this surplus is difficult. The new legislation gives DB schemes greater flexibility to release surplus funds, which can be used to support employers or improve member benefits.

The Act also creates a legislative framework for commercial superfunds, intended to support the consolidation of DB liabilities while maintaining member protections.

What Happens Next

The Act is now law, but most of the practical changes will be implemented through secondary legislation and consultations over the next 12 to 24 months. Key next steps include:

• Detailed regulations on how pot consolidation will work in practice
• The Value for Money framework standards and assessment criteria
• Rules for megafund creation and governance
• The Pensions Commission, which will examine whether current savings levels are sufficient for comfortable retirements
• Pension dashboards, which are being rolled out separately and will allow savers to view all their pots in one place by late 2026

For savers, the immediate impact is limited. The structural changes will take time to implement. But the direction is clear: fewer, larger pension schemes with stronger governance, more transparency on value, and automatic consolidation of scattered pots. For a broader look at how workplace pensions work and how these changes fit in, see our workplace pension guide. If you are weighing up pension contributions against other savings options, our pension vs ISA comparison covers the trade-offs.

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