Pension Schemes Bill: what’s changing and what it means for your retirement
The government’s latest reforms to pensions are designed to make saving for retirement easier and provide better value for money – but will they leave you better off?
Pension reforms aiming to shakeup the £2 trillion UK retirement savings market have passed through parliament.
The Pension Schemes Bill was first introduced in July 2025 and passed its final House of Lords amendments stage this week. It is now awaiting Royal Assent.
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Here’s everything you need to know about the changes and how you could be affected.
What is the Pension Schemes Bill?
The Pension Schemes Bill is designed to “support working people plan for their retirement by making pensions simpler to understand, easier to manage, and drive better value over the long term”, the government said.
Changes include making it easier for people to consolidate older pots and making trustees follow a value for money framework.
Pension megafunds will also be created from local government pensions to help back UK infrastructure projects.
The government claims that measures in the Bill mean that an average male earner at the start of their career could see up to £31,000 more in their retirement fund by the time they retire.
The average female worker could see £26,000 more in their retirement fund.
Here is what the government’s pension reforms could mean for you.
Pension pot consolidation
Millions of savers with workplace pensions with less than £1,000 in them will have their pots brought together into a single scheme, under plans in the Pension Schemes Bill.
There are around 13 million small pension pots built up under auto-enrolment. In future these will be automatically consolidated without the member having to give permission.
The plan is to combine them into one pension scheme that is “certified as delivering good value to savers”, making pension saving less hassle and more rewarding.
Under the changes, a Small Pots Data Platform will be set up to identify and source pension pots that could be consolidated. The person who owns the savings will be contacted and will have the option to opt-out and transfer their funds elsewhere or carry on with the new scheme.
Rob Morgan, chief investment analyst at Charles Stanley, said: “Too often pension savers forget about very small pots. Consolidation of these is beneficial for individual consumer outcomes as well as to the wider industry’s ability to serve customers appropriately and drive economies of scale.
“With 13 million small pots holding £1,000 or less, and the number increasing by around one million a year, the industry was on an unsustainable path of fragmentation. Challenges lie ahead in terms of the implementation of a commercial model, but the direction of travel in terms of tackling this is encouraging.”
Value for money framework
The changes introduce a new system to show how well pension schemes are performing, with the aim of helping savers understand whether their scheme is giving them good value and protecting them from getting stuck in underperforming pension schemes for years on end.
Pension scheme trustees will be required to demonstrate the value for money (VFM) their schemes are offering members and will be forced to act if their scheme falls short of expected standards.
Sankar Mahalingham, managing director of LawDeb Pensions, said: “Schemes need to ensure the interests of their members are the centre point of any decisions, which is why it’s positive to see that the government will challenge schemes delivering poor returns.”
Under a VFM framework, schemes will be better able to compare themselves against their peers, with those falling short made public.
The VFM framework will standardise how value is assessed, which it is hoped will lead to transparency and comparability.
The government suggests this, in turn, will drive competition and a long-term focus on value across the defined contribution pensions sector.
Pension megafunds
The Act backs the creation of pension mega funds that merge smaller multi-employer schemes, known as master trusts.
There are also plans to consolidate Local Government Pension Scheme assets into pools managed by FCA-regulated managers.
The idea is that these will work together to invest in assets such as infrastructure to boost the UK economy.
The legislation also includes a reserve power for the government to mandate how master trusts invest, with an aim to boost private UK investment markets – known as productive finance.
This was one of the more contentious issues and the House of Lords secured a number of amendments such as including investment trusts as the choice of private asset.
Additionally, the extent to which the government can ‘mandate’ how defined contribution pension schemes invest has been limited to no more than 10% of total assets held in default funds and by no more than 5% in UK-based assets.
Default options at-retirement
For those approaching retirement, the legislation will require schemes to offer clear default options for turning savings into a retirement income. The aim is to give people clearer, more secure routes to decide how they use their pension money over time.
Pension schemes are expected to set default solutions for members accessing pension money – if workplace pension savers want to do something different, they will have to opt out of the default.
