Pension Schemes Act 2026: Key Changes Explained
The Pension Schemes Act 2026 introduces several changes aimed at making pensions easier to manage and improving outcomes for savers. This article outlines the key measures, which may also be useful for CII R04 exam preparation.
This article is correct as at 4 August 2026.
Whilst financial planners could be forgiven for it flying under their radar, the Pension Schemes Bill 2025 was quietly passed into law on 29 April 2026, becoming the Pension Schemes Act 2026.
The stated aim of the Bill was to help workers plan better for retirement by making pensions easier to manage. Government estimates claim that it will benefit your average worker by £29,000 by the time they retire.
Automatic consolidation of small pots
One of the key aims is to address the issue of scheme members building up multiple pots and finding it hard to keep track of their retirement savings. The law will address this by allowing for the automatic consolidation of small pots. Under the changes, pension pots valued at less than £1,000 which have been inactive for 12 months will be automatically switched to a consolidator scheme managed by a certified consolidator. The owner of the savings will be informed and afforded the option to move them elsewhere should they wish to do so.
Value for Money framework
The Act also incorporates a Value for Money framework. This is a standardised approach which requires pension schemes to report on their scheme’s value for money. The assessment will surround three key pillars which are investment performance; costs and charges; and service. Poorly performing schemes may be subject to improvement plans and may ultimately be closed to new members or forced to merge with better performing ones.
Guided pathway for retirement income
Trustees will be required as part of the Act to provide defined contribution savers with a guided pathway to turn their pension pot into a regular income. Workplace pension savers will be permitted to take a different course of action but will be required to actively opt out of the default arrangement.
Other changes
Other key changes include the creation of multi-employer pension ‘megafunds’. These will be valued at £25 billion or more and the intention is to drive down costs by promoting economies of scale and permitting investment into a wider range of assets which will include UK business and infrastructure. Defined benefit schemes will also be provided with the flexibility to unlock surplus funds, which is expected to unlock up to £160 billion to help support employers and members. The dispute process for pension scheme overpayments has also been amended to allow such payments to be recovered from future payments on the back of a Pensions Ombudsman decision rather than requiring a court order.
Some interesting points to note there and many of these are likely to work their way into the R04 syllabus in one way or another.
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