Pensions Schemes Bill 2025 – what it means for your defined contribution (DC) pension strategy

In June 2025, the government introduced the Pension Schemes Bill 2025 to Parliament, confirming major changes to Defined Benefits (DB) and Defined Contributions (DC) pensions policy, which will be introduced over the next year or so.

This blog sets out some thoughts on these developments and some important next steps for consideration. Your DC pension strategy is important and should be finding its way onto meeting agendas sooner rather than later.

The key areas most relevant to housing associations running DC schemes and their pension scheme members are:

• A new DC Value for Money (VFM) framework – helping trustees and scheme sponsors assess the VFM of their scheme against other schemes.
• DC megafunds – this places a requirement on pension providers to have at least £25bn in their main default arrangement by 2030.
• Guided retirement – implementing a default pension income solution.
• Small pot consolidation – helping members automatically consolidate small legacy pension pots into a default consolidator scheme.

Value for Money (VFM)

The new VFM framework applies from 2028 and requires schemes to provide metrics across three areas to enable comparison with similar schemes.

These are:

1. Investment performance.
2. Costs and charges.
3. Quality of services.

Schemes will be given a VFM rating. Anything short of ‘fully delivering’ will lead to action, ranging from submitting an improvement plan to the Pensions Regulator, to a forced transfer to a better rated scheme.

DC megafunds

Following on from the initial Mansion House announcement in November 2024, the government has confirmed that it wants to accelerate consolidation and help build scale in the DC market. This is in line with its view that bigger means better, through lower costs and the ability to invest in a wider range of assets.

The Bill sets out new rules to create multi-employer DC scheme ‘megafunds’ (ie master trusts) of at least £25bn by 2030. However, there is an easement whereby providers with over £10bn in assets and a credible plan for achieving scale will have until 2035 to do so.

Our expectation is that this is likely to lead to a sizeable reduction in the number of master trusts acting in the market in the short to medium term.

Guided retirement solutions

For some years now the focus in DC schemes has tended to be to maximise the amount of a member’s DC pot at retirement. This is of course very important, but it is at the point of retirement when a member is tasked with answering one of life’s toughest questions – how do I make the most of the DC pension savings I have accumulated? Prior to 2015 most people would have purchased an annuity but that is no longer the case, and so there are many more options for people to try and get their heads around.

Guidance is of course available and many providers offer advice options too, albeit the majority of members don’t want to or can’t afford to pay for it, so take up can be low. The Bill aims to tackles this through what it calls ‘default pension benefit solutions’, also known as guided retirement, which should be in place by 2026/27.

Small pot consolidation

The success of the auto-enrolment policy has had an unwelcome consequence in that many people have built up a number of separate small DC pots following moves from one job to another.

In the UK, it is reported that there are currently over 12 million deferred pension pots worth under £1,000, which adds up to more than a third of the staggering £31bn of reported ‘lost’ DC pensions that are unclaimed or inactive.

Where an individual has several small DC pots worth £1,000 or less, the Bill sets out new rules to automatically bring them together into one pension scheme that is certified as delivering good value to savers, linked to the VFM ratings previously mentioned.

Next steps for housing associations

A common issue we see for a lot of our clients, including many in the housing sector, is that their existing DC pension arrangements have been in place for many years and are not reviewed regularly.

Given the amount of change happening in DC pensions policy, now is an excellent time to review your existing arrangement and consider the following factors:

• Is it right for your employee demographic today?
• Does it offer good value for your members, and how does it plan to meet the new VFM requirements?
• Does it offer any alternatives alongside pensions (corporate ISAs etc)?
• Does it meet the DC megafund requirements, or have a plan to do so?
• What approach is your provider taking for guided retirement solutions?

We have seen some competitive pricing in the DC market over the past couple of years, so it is worth investigating whether your current provider can improve the terms it offers your members or the services provided to you within your existing terms.

Want to find out more?

LCP’s specialist team can help with all aspects of your DC pension arrangements. If you’d like to discuss how we can help, please get in touch.