PwC comments on the Pensions Bill

Gareth Henty, partner and head of Pensions Consulting at PwC, commented:

“The Pensions Bill is the latest piece of the Government's ambitious pensions reform puzzle, bringing structural and regulatory change like we haven't seen for over a decade. Sponsors and trustees will need to consider these developments carefully from a cost, value for pension scheme members and potential value creation perspective.”

"On DB surplus flexibilities, corporates will now need to spend time assessing whether the £160bn prize on the table is realistically achievable and in line with wider stakeholder interests. We expect the reforms put forward will result in a number of companies making an about turn on pension strategy, particularly in light of increased costs employers are facing elsewhere."

Katie Lightstone, Employer Covenant partner at PwC, commented:

“The Pensions Bill signals a major shift in approach to the provision of DB member benefits over the long term, increasing flexibility to release surplus in DB schemes. 

“Striking the right balance between member security and supporting UK growth will be crucial. Trustees will need to understand the level of residual risk underpinned by the covenant, especially how any downside risks might impact the sponsor and scheme at the same time. 

“A well-informed and long-term assessment of the employer covenant that underpins each of these options and the appropriateness of DB surplus release will be critical to getting a solution that works for all parties.”

Roshni Patel, director and head of DC Consulting, commented:

“The Bill is a pivotal step in strengthening outcomes for Defined Contribution (DC) savers.

“The drive to consolidate schemes into larger, more efficient funds will help unlock better returns through lower costs and broader investment opportunities. A clear value-for-money framework and the introduction of default retirement income options are especially critical to improving the saver journey.

“However, only a small handful of DC providers currently meet the £25bn threshold. Most will now be focused on consolidating legacy default funds and growing assets through acquisition or new business to reach the £10bn–£25bn scale. This strategic shift may divert attention from the day-to-day member experience - particularly for those approaching retirement over the next 10 years.

“These measures are a necessary evolution in DC pensions. The challenge now is execution - getting scale and governance right while ensuring members continue to receive the support they need.”

ENDS 

Notes to editor

The long-awaited Pension Schemes Bill was laid before Parliament today.  While the full impact of these measures will depend on the finer details, it is now clear that the Bill includes several key provisions, including;

• Requiring DC schemes to prove they are value for money, to protect savers from getting stuck in underperforming schemes. 
• Simplifying retirement choices, with all pension schemes offering default routes to an income in retirement. 
• Bringing together small pension pots worth £1,000 or less into one pension scheme that is certified as delivering good value to savers. 
• Introducing new rules creating multi-employer DC scheme “megafunds” of at least £25 billion. 
• Consolidating the Local Government Pension Scheme (LGPS), with assets held in six pools that can invest in local areas infrastructure, housing and clean energy.
• Introducing a new framework for Defined Benefit (DB) pension schemes to release surplus assets.  The Government quotes a total surplus figure of £160 billion which, if distributed in its entirety, would equate to potential tax receipts of £40 billion, broadly equivalent to total tax reciepts from council taxes.

While the Government expects the Bill to be passed in 2026, secondary legislation and guidance also needs to be prepared.  It will therefore be some time before these new provisions are fully brought into effect.  However, steps should be taken now to prepare for these changes and, in relation to DB surplus flexibilities, to ensure that nothing is done in the meantime which could prevent these flexibilities from being used in practice.