Pensions Essentials - July 2026

The Pension Schemes Act 2026 sets out a value for money (VfM) framework which will require DC schemes to collect and publish data on prescribed metrics and assess their performance against the data from other schemes. Those not providing value can be required to transfer members out. A recent consultation paper and draft regulations set out more details on how all of this will work. Consultation closes on 1 September.

The VfM requirements will apply at both a scheme and arrangement level, so thought will need to be given as to whether both a scheme and a particular arrangement is in-scope. An arrangement is defined as “an allocation of contributions to one or more investments according to a strategy adopted by” the trustees.

Looking in more detail at what is being proposed:

VfM periods: The metrics that must be assessed and which schemes and arrangements are in-scope are assessed by reference to a VfM period. The first VFM period will start on 1 July 2027 and run to 31 December 2027. Subsequent VFM periods will be calendar years.

In-scope schemes: Schemes providing money purchase benefits on the 31 December of a VfM period are in-scope, subject to some exemptions including unregistered schemes, SSASs, CDC schemes, certain executive schemes and schemes in wind-up. This will include hybrid schemes, but the VfM requirements are only intended to apply to the DC element.

In-scope arrangements: AVC arrangements “set up by the employer” are exempt, but it is not clear if this is wide enough to catch arrangements set up by trustees. Arrangements are in-scope if, on 31st December of any VfM period they fell into one of four categories:

• Default arrangement - an open arrangement with at least 1000 members (or the largest or only arrangement within the scheme) where members are allocated to without making a choice.
• Legacy arrangement – can be open or closed to new members and must be (according to the consultation paper) used by at least 80% of active and deferreds relating to at least one employer, which in a multi-employer scheme must have at least 50 members. It must also have at least 1000 members or be the largest or only arrangement.
• Transferred-member arrangement - where benefits have been transferred without consent and the arrangement has 1000+ members or is the only or largest arrangement in the scheme. The transfer of a single member could bring an out-of-scope arrangement into the VfM requirements.
• Bespoke arrangements - an arrangement that has an investment strategy set by an employer and is used only by that employer.  

Metric data: It appears that some metrics are intended to be assessed at scheme level and some at arrangement level. In particular, quality of service metrics are intended to be considered at scheme level. These include information about the accuracy of record keeping, promptness of core financial transactions, information about member complaints and the percentage of members that have nominated a beneficiary.

There are also metrics in relation to asset allocation, forward and backward-looking investment performance and costs and charges. The consultation paper says that these are designed to apply at the arrangement level.

Sharing metric data: Data must be uploaded to a database operated by TPR by 31 March following the end of a VfM period – so the first deadline will be 31 March 2028. Metric data will need to be published by 7 November each year but in 2028 as discussed in the road map item above, smaller non-commercial schemes will be exempt.

VfM assessment: A VfM assessment will need to be carried out for an in-scope scheme or arrangement each year in a format required by TPR and completed, published and uploaded to TPR’s database by 31 October.

Trustees will need to compare their metric data with benchmarked data from TPR’s database. Where there is a material difference between comparator data and scheme data, that is indicative of not providing value. However, where trustees consider that the metric data does not reasonably reflect the actual value for money, it is open to them to consider other information and criteria.

VfM rating: Trustees will also need to assign one of four ratings to a scheme or arrangement: green, light green, amber and red. An amber or a red rating indicates that a scheme or arrangement is not providing value and action needs to be taken (including closure and transferring members out). However, it is proposed that no formal consequences will apply in 2028.

All of this represents a lot of work so schemes will need to consider sooner rather than later which arrangements might be in scope and what information will be needed.

From April 2030, the Pension Schemes Act 2026 will require authorised master trusts and GPPs to be approved in relation to a main scale default arrangement (MSDA) or they will not be able to continue accepting auto-enrolment contributions.

An MSDA is an arrangement in which a member has made no investment choice and which has assets of at least £25 billion. The £25 billion test is at the fund level rather than the scheme level, so an MSDA can be used by more than one GPP or master trust if the schemes are “connected” and if the assets are managed under a common investment strategy (CIS).

A scheme with a default arrangement of £10 billion or more may be approved for the transition pathway if it is on track to meet the £25 billion requirement by 2035.

The meaning of “connected” and “CIS” is to be set out in regulations and the Government has issued a discussion paper seeking views on possible definitions.

Common investment strategy: The assets held within an MSDA must be managed under a CIS. The CIS will therefore be key in determining how or whether connected schemes will be able to meet the scale threshold. The intention is to ensure that the assets will be invested in a sufficiently ‘common’ way to drive the benefits of scale but it is intended to allow for variance by age. The Government asks if any other variance factors should be considered.

Connected schemes: Unconnected schemes cannot participate in the same MSDA as other schemes and benefit from the shared scale. Regulations will define the level of connection required and views are invited around this topic.

Default funds: The expectation is that auto-enrolment contributions will be invested in the MSDA unless there is a reason to use an alternative. The paper asks schemes how many default arrangements they have and whether there are any plans to consolidate them.

The Act gives the Government a power to restrict the creation of new non-scale default arrangements and provides for regulations to be made requiring their consolidation. The Government intends to carry out a review of non-scale default arrangements in 2029.

Government goals for TPR: The Government has set TPR four goals to encourage growth. These are to:

• Reform the workplace pensions sector;
• Unlock surplus/capital;
• Support productive investment; and
• Promote the responsible and safe use of AI.

The Government has also set out how TPR will need to measure success against these objectives which includes monitoring DC consolidation and the number of schemes that release surplus.

Corporate plan: TPR’s most recent corporate plan sets out its priorities over the next year. These include raising the quality of scheme governance and administration, enhancing value for money and ensuring members are confident entering retirement.

TPR intends to publish guidance on surplus extraction, the responsible adoption of AI and dashboard duties as well as reviewing the guidance on cyber security. It also proposes to develop guidance and a strategy for guided retirement.

Corporate strategy: TPR’s new corporate strategy sets out its plans and objectives for the next 5 years. It intends to take a more system wide approach to regulation and actively shape change within the market.

Annual report and accounts: TPR has issued its annual report and accounts for 2025/26. During the year, it “refreshed its approach to scheme oversight and supervision to be more focused, effective and efficient” and achieve compliance with less regulatory burden.

Information gathering: A recent intervention report concerns the plumbing industry pension scheme and is particularly notable for TPR’s use of its information gathering powers.

An employer had left an underfunded industry-wide DB scheme and failed to pay its section 75 debt whilst paying significant dividends. TPR used its powers to require individuals to attend interviews and issued a penalty against the company’s accountants for failing to provide requested information. A settlement payment was agreed with the scheme before contribution notices were issued.

The Pension Schemes Act 2026 provides for the PPF to provide indexation on compensation relating to pre-6 April 1997 pensions. In line with indexation on other PPF benefits, it will be CPI capped at 2.5% and will only be payable where the member’s original scheme provided for indexation of pre-1997 benefits. Where the scheme only provided for GMP increases, members will receive increases on a proportion of their pre-1997 benefits.

The PPF has now published a list of schemes that are eligible for pre-1997 increases and says it will contact members directly.

DB schemes outside of the PPF will also be impacted by this change as the introduction of pre-97 indexation will affect the calculation of their liabilities for things such as winding-up priorities and PPF levies. The Government’s updated roadmap acknowledges this and says that it is working with the PPF to deliver regulations on pre-97 indexation. It is not clear what these regulations will cover. 

In addition, in response to a recent parliamentary query on whether the Government would look again at the compulsory indexation of pre-1997 benefits, Baroness Sherlock said on behalf of the Government that: “it is up to individual schemes what their rules are for indexing their pensions”, whilst also suggesting that the relaxation of the rules around the use of surplus could be used, for paying for indexation “if affordable and appropriate”.