Briefing: Pension Schemes Act 2026 — a real step change

Opportunities and risks await in the controversial Pension Schemes Act 2026, says June Crombie, DWF Pensions Partner.

The long-trailed and, in some respects, controversial Pension Schemes Act 2026 received royal assent on 29 April 2026. The reforms received advance publicity in mainstream media due to the wide range of major changes to the current pension environment and the impact on trustees, providers, employers and pension scheme members. As is common – but with one main exception (Retrospective actuarial confirmation of historical benefit changes) – the Act contains a framework, with further detail to come in regulations and guidance, on which the Government has indicated it will consult over the next four years.

Trustees and providers will have to navigate these in terms of strategy, funding position of their schemes and delivering benefits for members. There will be opportunities and risks for employers too. Some of the major changes are outlined here:

Government-mandated investment in UK private companies and assets

The most controversial change relates to the introduction of power for government to direct certain trustees and managers to invest in UK pension fund assets in UK private companies. Trustees and managers must comply with fiduciary duties when considering investments for pension schemes. It was therefore inevitable that there would be strong views and lively debate, with House of Lords amendments and some government concessions before the Act came into force. The final content of the Act delivered a stronger framework of conditions, requirements and restrictions surrounding the government power it introduced (including that the power could only be used once).

Power to pay surplus when a scheme is not winding up

Employers sponsoring DB pension schemes ultimately bear the risk of funding to meet benefits for members of the scheme. The provisions governing many modern DB pension schemes contain a power to pay surplus at the end of a scheme winding-up process, but it is not as common when a scheme is not winding up.

Many schemes currently have surpluses and if there is no plan to wind up a scheme, the issue of ‘trapped surpluses’ arises if there is no power to pay out. The Act introduces power – gated by conditions, certifications and assessments – to allow trustees to decide to pay out surplus funds to employers where a scheme is not winding up. The scheme strategy and the covenant of employers will be critical factors in any assessment too. Any payment of surplus is subject to the deduction of tax at 25% before payment. Regulations are expected this year, followed by guidance.

Retrospective actuarial confirmation of historical benefit changes

Coming into force immediately, the introduction of a potential remedy where actuarial confirmation for historical amendments in the relevant period cannot be located – meaning these amendments could be void – is unusual but very welcome. The Department for Work and Pensions (DWP) responded to industry-wide concerns for a workable solution after the decision in Virgin Media Ltd v NTL Pension Trustees II Ltd [2024] EWCA Civ 843.

The Pensions Regulator has published guidance (New defined benefit surplus flexibilities) on remediation provisions in the Act, so trustees and employers should now be reviewing this and determining whether their schemes are affected and whether this remedy could be used, including checking with the Actuary before any formal requests.

Value for money assessment

For employers providing a defined contribution (DC) pension scheme, the Act introduces system-wide reforms, including value for money (VFM) assessments  that must be carried out to demonstrate performance against consistent metrics, to improve pension outcomes for members. This can only be positive for members and employers, given the challenges in achieving good financial retirement. 

Consolidation of smaller schemes

The Act also contains provisions on consolidation of smaller DC schemes, to achieve scale through the creation of ‘megafunds’. This is intended to improve investment returns and reduce costs and is part of the Government’s aim of investment in UK infrastructure and assets.

Employee visibility on their pension savings

The work to get to the point when ‘pension dashboards’ go live for individuals continues apace. Connection to the dashboards is currently with medium-sized schemes and providers. A recent update from the Money and Pensions Service notes that 70 million pension records have been added. Once live, individuals will be able to access details of their pension entitlement from all schemes – public and private sector – that have provided data to the dashboards.

In summary, there are lots of statutory changes reflecting policy changes, with staggered lead-in periods, but it would be fair to say this is a real step change with potentially good outcomes for all – although not without risk. Ensuring adequate protections and consistency with other responsibilities of trustees and managers in the regulations and guidance to come will be key.