30 May 2025
Hot on the heels of the recent Mansion House Accord, the Government has today published the Pensions Investment Review Final Report and its response to its consultation on “Unlocking the UK pensions market for growth”.
Emma Martin, Senior Counsel at Sackers comments: “It comes as no surprise that the government has reaffirmed its vision for a competitive and consolidated DC pensions market of “bigger and better” “megafunds” – pension funds that will have the scale, expertise and diversified investment portfolios (including in more productive assets such as private markets) which the government believes can achieve its dual objectives of better outcomes for savers and the UK economy as a whole. This is a transformational moment.”
Under the proposals (which will be set out in the Pension Schemes Bill and regulations), the government has helpfully clarified that multi-employer DC schemes will need to have at least one large “megafund” with a minimum of £25bn in assets under management (AUM) from 2030, but with a “transition pathway” available to schemes with demonstrable plans to reach sufficient scale by 2035. There will be new supervisory roles for regulators in this area. The government also intends to exempt some schemes from the requirements, highlighting schemes with connected or concurrent defined benefit accrual and schemes which have related but unconnected employers (such as those for industries or professions). Some in the industry will need to examine the detail of these exemptions carefully once the draft legislation is published.
The government has also confirmed it will introduce a contractual override to permit transfers from contract-based workplace arrangements without consent, subject to appropriate safeguards, to help arrangements achieve scale. This will put contract-based arrangements on a level playing field with trust-based arrangements and is a long-awaited positive development for the industry. The government will require proposed transfers to receive a positive assessment from an “independent third party with sufficient expertise”: this could be an ICG or another body that meets specified criteria.
In light of the recent Mansion House Accord, the Government has not yet gone as far as mandating asset allocations for default arrangements, including in private markets. However, it has confirmed that the Pension Schemes Bill will include a reserve power which would, if necessary, enable the government to set baseline targets for pension schemes to invest in a broader range of private assets, including in the UK. Although the government says that any requirements under this reserve power would be consistent with trustees’ fiduciary duties and that it does not anticipate exercising this power unless it considered the industry has not delivered this change on its own, this is a significant intervention which has already been questioned in some quarters. We eagerly await further details of this power.
With the government’s response on last year’s DB options consultation published at the same time, the Pensions Schemes Bill due before the summer recess, and confirmation that the government will shortly be launching Phase Two of the Pensions Review focusing on adequacy in the coming months, it looks to be a busy summer in pensions.”
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