Pension Schemes Bill Introduced: Megafunds, Small Pots and DB Surplus Release

The main measures

• Megafunds: unless exempt, multi-employer DC schemes will need at least £25 billion in their main default arrangement by 2030, or be on a route to that scale by 2035 with at least £10 billion in their main default.
• Small pots: pots worth £1,000 or less will be consolidated into a single scheme certified as offering good value.
• DB surplus: trustees of well-funded DB schemes will be able to release surplus to employers and members where it is safe to do so. The government puts total DB surplus at £160 billion.
• Value for Money: DC schemes will have to show that they provide value for money, so savers are not left in underperforming arrangements.
• Retirement income: all schemes must offer default pension benefit solutions, which could include collective defined contribution provision.
• Local Government Pension Scheme: assets will be held in six pools.
• Other changes: legislation for DB superfunds, power for the Pension Protection Fund to reduce its levy when not needed, and enforceable Pensions Ombudsman determinations in overpayment cases without a county court order.

How it fits the Pensions Investment Review

The Bill follows the final report of the Pensions Investment Review, published on 29 May. In its release on the review, HM Treasury said it aims to double the number of £25 billion-plus megafunds by 2030 and confirmed that the £392 billion Local Government Pension Scheme, currently spread across 86 administering authorities, will be consolidated into six pools by the March 2026 deadline. It estimated that consolidation alone could add about £6,000 to an average earner's DC pot at retirement.

Who is affected

The Pension Schemes Bill matters most for master trusts and group personal pension providers that may fall short of the scale test, for employers choosing a workplace scheme, for sponsors of well-funded DB schemes weighing surplus extraction, and for LGPS administering authorities. Providers below the £10 billion transition threshold will need to plan how they reach scale before 2030. The Bill now begins its passage through Parliament, and much of the detail will depend on secondary legislation and regulator guidance.

Sources

• GOV.UK: 20 million workers set to benefit from new Pension Schemes Bill
• GOV.UK: Pension plan to double £25 billion+ megafunds, boost investment and improve returns for savers