Article The Pensions Investment Review – an initial analysis

On 29 May 2025, the Government unveiled its final report on the Pensions Investment Review along with its response to the associated consultation: ‘Unlocking the UK pensions market for growth’. These are being legislated for in the Pension Schemes Bill alongside a raft of other initiatives.

Between now and 2030, the UK workplace pensions market is expected to face radical change as the Government pushes for bigger, bolder and more British pensions.

So, what might this mean for advisers? In this article, I’ve focused on the changes for multi-employer Defined Contribution schemes, looking at:

• The background and aims of the Review
• Links to the Value for Money framework
• Minimum scale of default arrangement
• Maximum number of defaults
• Contractual override
• Fragmentation
• Investment and asset allocations
• What’s not being taken forward

What are the key changes?

• All multi-employer arrangements will need to have at least one ‘main scale default arrangement’ of at least £25 billion by 2030, with some limited exemptions and transitional provisions.¹
• The Government won’t mandate any minimum investment allocations for now but has reserve powers in the Pension Schemes Bill to mandate in future if needed.
• Legislation is being drafted to permit bulk transfers of contract-based pensions without member consent.

Pensions Review – a background

Shortly after coming into power in 2024, the Labour Government announced it would be carrying out a Pensions Review in two parts. The first focused on pension investments and involved a Call for Evidence, an interim report and a consultation aimed at multi-employer schemes on ‘Unlocking the UK pensions market for growth’.

The intention was to drive consolidation in the fragmented workplace pensions market, build scale and improve member outcomes. But perhaps most significantly, the Government wanted to get workplace pension schemes to invest more in private assets, including within the UK, to drive UK economic growth.

The second phase, which will look at other longer-term challenges and systemic issues around adequacy, is now expected shortly.

Aims of the Pensions Investment Review

The Government’s top priority is to improve UK economic growth, and it sees pensions and how they invest as key to this. The aims of the Pensions Investment Review were to ‘boost investment, increase saver returns and tackle waste in the pension system’.² The Government wants to see fewer, bigger, better-run pension schemes with the scale and resources to invest in a wide range of assets, including UK productive finance, which it hopes will also deliver better member outcomes. The Pensions Investment Report focuses on multi-employer scheme sector – master trusts and group personal pensions.

Links to the Value for Money framework

There is strong link with the Value for Money (VFM) framework in the Pension Schemes Bill, which will introduce a new standardised assessment of value for money for default arrangements in both single- and multi-employer schemes. This will be based on an extensive set of metrics covering investment performance, quality of services and costs and charges.

Minimum scale of default arrangement

Providers of multi-employer schemes including Group Personal Pensions and Master Trusts will need to have at least one ‘main scale default arrangement’ of at least £25 billion by 2030.¹ The test is at ‘default arrangement’ rather than any component fund level, to focus on where investment strategy decisions are made. Providers and master trusts must build investment capability commensurate with scale, including in-house expertise, and have strong governance.

Schemes can apply to use a transitional pathway if their main default will be at least £10bn by 2030 and they have credible plans to achieve £25 billion by 2035.³ There will be other qualifying criteria such as level of investment in productive and UK assets, investment expertise and satisfying the VFM assessment.

Schemes which can’t meet the tests won’t be eligible for auto-enrolment and will have to wind up and consolidate.

There will be limited exemptions including:

• Schemes providing for protected characteristics such as religious beliefs
• Certain hybrid schemes (with defined benefits as well as DC) for connected employers
• Where a default is needed to avoid conflicts of interest

Multi-employer Collective Defined Contribution schemes are also being carved out as the Government wants to encourage these and believes they will invest in productive assets.

Maximum number of defaults

The Government decided not to set a maximum number of default arrangements per scheme / provider. However, it will expect schemes/providers to consider all other defaults (i.e. not main scale defaults) and to consolidate these into its best value main scale default unless ‘there is a clear and demonstrably beneficial reason for them (the members) to remain in another arrangement’.⁴ We’ll await further detail on how this will operate.

Also, regulatory approval will be needed before launching any new defaults.

Contractual override

While trustees can transfer members in bulk between arrangements, this currently isn’t possible in the contract-based world without first gaining individual member consent. This is a huge barrier to consolidation and the Government will lay legislation to permit this in future. The FCA will consult on rules, possibly this Autumn, which are likely to go live from 2027.

The rules and regulations will include member protections. Providers/schemes will need to get confirmation from an independent third-party expert (possibly an actuary or the provider’s Independent Governance Committee) that the transfer meets a ‘best interest’ test.

Members will be offered an opt out from bulk transfer with the chance to self-select an alternative arrangement. Active employers will also be notified and possibly consulted.

Members will have access to redress if the provider doesn’t follow due process or acts without due care. But as future investment performance can’t be predicted, there will be no redress if this falls below what the previous arrangement would have produced.

Fragmentation

These minimum scale requirements, alongside the VFM framework, are seeking to reduce fragmentation and build scale across the workplace pensions market. The Government will carry out a review in 2029 to assess if reforms are delivering their desired aim, understanding and challenging the reasons why smaller default arrangements still operate.

Investment and asset allocations

One of the Pensions Investment Review’s original aims was to get DC pensions to invest more in private assets, including UK assets, to drive UK economic growth, believing scale is a pre-requisite for this.

Since the Review started, and at time of writing, 17 of the largest pension providers, including Aegon UK, have signed the Mansion House Accord. This voluntary industry commitment involves investing 10% of main defaults in private assets, including 5% within the UK, by 2030. The Government has warmly welcomed this in its final report.⁵

It’s largely thanks to the Accord that the Government is not currently mandating minimum investment allocations to certain asset categories. This would have been highly contentious legally had it clashed with trustee fiduciary duty or the FCA’s Consumer Duty. It would also have been politically risky. But as a fallback, the Pension Schemes Bill includes reserve powers to mandate.

From later this year, the Pensions Regulator and the FCA will carry out an annual survey of asset allocations to check its progress. This will become part of VFM reporting requirements, likely from 2028.

What’s not being taken forward

Advice to employers from employee benefit consultants and corporate advisers won’t at this stage be brought within FCA regulation, but this will be kept under review. The aim here is to make sure such advice looks at all aspects of VFM and not just charges. 

There won’t be a ban on schemes and providers operating differential pricing between employers and no new duties on employers to consider wider VFM aspects when selecting an auto-enrolment scheme.

What’s next?

The Pensions Investment Report is one significant piece of the Government’s pensions agenda. Another is the Pension Schemes Bill, containing legislative changes for not just the changes discussed here but also the VFM framework; dealing with small, deferred DC pension pots; and introducing guided retirement options which trustees will need to put in place. Across all of these, there will be further consultations on the finer detail.

With so many interlinked initiatives, Aegon UK has been calling for the Government to consider how they all fit together. The Government has now published a roadmap and we’re pleased this has been positioned as ‘indicative’ as it looks extremely challenging.⁶ The priority should be to do it ‘right’ for members, not to rush the changes through.

What does this mean for EBCs and corporate advisers? 

While there’s detail yet to come, the policy direction is clear. The multi-employer pensions market will be embarking on a journey towards ‘megafund’ scale with a greater focus on private assets and UK investment.

What’s beyond doubt is the pensions landscape will look very different in five years’ time.

So, for the next few years, it’s likely employee benefit consultants and corporate advisers will be in high demand to help employers and trustees understand the changes and weigh up their options.