TRW & Co · Pensions and incentives
Pension Schemes Act Reforms: DB Surplus, Megafunds and Value for Money
The Pension Schemes Bill became the Pension Schemes Act 2026 on 29 April 2026. It creates a statutory route to release DB surplus, a £25 billion scale test for DC default funds, a value for money framework, small pots consolidation and a permanent superfund regime. Most measures need regulations first, so trustees and employers now face a planning task rather than an immediate compliance deadline.
Key pointThe new surplus power belongs to trustees, not employers, and cannot be used until regulations set the funding threshold, so employers who want access to surplus should agree a framework with trustees now, including what members receive in return.
At a glance
Royal Assent
The Bill received Royal Assent on 29 April 2026, becoming the Pension Schemes Act 2026; most provisions need regulations before they take effect.
DB surplus power
Trustees may resolve to create or relax a power to pay surplus to employers; regulations will set the funding threshold and conditions.
DC scale test
Master trusts and group personal pensions used for auto-enrolment need a default arrangement with £25 billion of assets by 2030, with transition routes.
Value for money
DC arrangements will be assessed on investment performance, costs and service and given public ratings, with first assessments expected from 2028.
Already in force
The Virgin Media section 37 fix applied from Royal Assent, and the Pensions Ombudsman's competent court status returned from 29 June 2026.
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The short answer: what the Pension Schemes Bill changed
The Pension Schemes Bill completed its passage through Parliament and received Royal Assent on 29 April 2026, becoming the Pension Schemes Act 2026. It is the most significant reform of UK workplace pensions in years. For defined benefit (DB) schemes it creates a statutory route to release surplus to employers and a permanent regime for superfunds. For defined contribution (DC) schemes it introduces scale requirements for default funds, a value for money (VFM) framework, automatic consolidation of small dormant pots and default retirement income solutions.
Very little of this applies yet. Most of the Act is a framework of powers, and the detail will come through regulations, FCA rules and Pensions Regulator guidance over several years. As of October 2026, the provisions already in force include the Virgin Media legislative fix and the restoration of the Pensions Ombudsman's status as a competent court.
For trustees and employers, the right response now is planning: understanding which measures affect their scheme, roughly when, and what decisions they can prepare for before the detailed rules arrive.
The reforms at a glance and expected timing
The table below summarises the main measures in the Pension Schemes Bill as enacted, with the timing indicated by government statements and the Department for Work and Pensions (DWP) pensions roadmap. Treat dates beyond those already in force as expectations, not commitments: the DWP has said it will update its roadmap.
| Reform | Who it affects | Status and expected timing |
|---|---|---|
| Virgin Media section 37 fix | Contracted-out DB schemes with historic amendments | In force from Royal Assent, 29 April 2026 |
| Pensions Ombudsman as competent court | Schemes recovering overpayments | In force from 29 June 2026 |
| DB surplus release power | DB trustees and sponsoring employers | Regulations and guidance expected around late 2027 |
| Default pension benefit solutions | Most occupational schemes providing DC benefits | Expected to phase in from 2027 |
| Value for money framework | DC trustees and providers | First assessments expected from 2028 |
| DB superfunds permanent regime | Superfunds and ceding schemes | Expected 2028 |
| DC scale requirement (£25 billion) | Master trusts and group personal pensions used for auto-enrolment | Requirement starts no earlier than 2030 |
| Small dormant pots consolidation | Auto-enrolment schemes | Expected staged approach from 2030 |
DB surplus release: the new statutory power
Section 9 of the Act inserts a new power into the Pensions Act 1995. Trustees of a trust-based DB scheme can pass a resolution to give the scheme a power to pay surplus to the employer, or to remove or relax restrictions on an existing power. It does not apply to a scheme being wound up.
The process has two stages. First, the trustees decide whether to adopt or modify the power. Second, they decide whether and how to exercise it. The Act also allows regulations to set the funding threshold for surplus payments; the government has indicated it intends to move from the current buy-out basis to full funding on a low dependency basis, certified by the scheme actuary. Further conditions, such as member notification, are expected.
Trustees' existing duties are unchanged. They must still act for the purposes of the scheme and in line with their fiduciary obligations when deciding whether to release surplus. Nothing in the Act gives employers a right to a refund: the power is the trustees', and many trustees are expected to seek benefit improvements or extra security for members as part of any arrangement. Our guide to DB surplus release explores negotiation strategy in more detail.
Separately, HMRC has said that legislation in a future Finance Bill will allow DB schemes to pay surplus directly to members, taxed as pension income, subject to conditions. That change is expected from April 2027 but depends on the Finance Bill.
DC megafunds: the £25 billion scale test
The Act requires master trusts and group personal pension schemes used for auto-enrolment to have at least one "main scale default arrangement" with at least £25 billion of assets under management by 2030. Schemes that cannot reach that level will have to consolidate or exit the default fund market.
Two alternative routes are expected. A transition pathway would be open to arrangements that can show at least £10 billion by 2030 and a credible plan to reach £25 billion by 2035. A new entrant pathway would be available only for genuinely new schemes with innovative products. Both will depend on regulations and regulatory approval, and the government has indicated that pathway approvals will open in 2029.
The Act also lets regulations restrict new "non-scale" default arrangements and provides for the FCA to override contractual terms so that contract-based providers can move savers out of underperforming legacy arrangements without individual consent, which is expected to start in 2028.
The reserve asset allocation power
One of the most debated parts of the Pension Schemes Bill was the reserve power to require certain DC default funds to invest in specified private assets. As enacted, it is narrowly confined: it applies to relevant master trusts and group personal pension schemes, caps any requirement at 10% of default fund assets in qualifying assets and 5% in UK assets, cannot be used before 1 January 2028, and includes a savers' interests test under which trustees can apply to the Pensions Regulator for relief. The government has described it as a backstop to the industry's voluntary Mansion House Accord commitments.
Value for money, small pots and retirement income
The VFM framework
DC trustees and providers will need to measure investment performance, costs and service quality against prescribed metrics, compare themselves with other arrangements and publish a rating. A joint FCA, DWP and Pensions Regulator consultation in early 2026 proposed four ratings, from strong value to not delivering value. Arrangements with an intermediate or "not delivering" rating will have to take specified actions, which the Act and the regulations under it will set out. The first assessments are expected in 2028.
Small dormant pots
The Act creates a framework for consolidating small dormant pots, initially those worth £1,000 or less, into authorised consolidator schemes. Members will be able to choose a consolidator or opt out. The duties to transfer are expected to come in from 2030 in stages.
Default pension benefit solutions
Trustees of most occupational schemes providing DC benefits will have to offer default retirement income solutions, so members who do not make an active choice are guided into a suitable decumulation option while keeping pension freedoms. These duties are expected to phase in from 2027, and trustees will need a pension benefits strategy.
How the DC measures fit together
The DC reforms in the Pension Schemes Bill are designed to reinforce each other. VFM ratings will expose underperforming arrangements, the scale test will push consolidation into larger default funds, contractual override and small pots consolidation will move savers into those funds, and default retirement solutions will shape what happens at the point of access. For employers, the combined effect is likely to be fewer, larger providers and more scrutiny of the scheme they choose for auto-enrolment. Trustees of single-employer DC schemes should consider whether running their own arrangement remains viable under the new framework.
Superfunds, Virgin Media and other measures
The Act puts DB superfunds on a permanent statutory footing, with authorisation by the Pensions Regulator and approval of individual transfers. A superfund transfer will generally only be possible where the ceding scheme cannot afford an insurer buy-out and the transfer improves the likelihood that benefits are paid in full. The previous condition that excluded schemes able to buy out within five years has been dropped. For alternatives, see our guide to pension buy-ins and buy-outs.
The Virgin Media fix, in force since Royal Assent, allows schemes to obtain written actuarial confirmation that historic amendments to contracted-out benefits would have met the section 37 of the Pension Schemes Act 1993 requirements. It does not help schemes that have already taken "positive action" to treat an amendment as void, or where validity was in issue in legal proceedings begun on or before 5 June 2025. Our guide to Virgin Media and section 37 explains the conditions.
Other measures include CPI-linked increases, capped at 2.5% a year, on certain pre-1997 Pension Protection Fund and Financial Assistance Scheme compensation; flexibility for the PPF to reduce its levy; LGPS asset pooling reforms; and a power to require employers to share auto-enrolment information with schemes.
What trustees and employers should do now
- Map the reforms to your scheme. Identify which measures apply to your DB section, DC section, master trust or contract-based arrangement, and when.
- Review scheme rules on surplus. Check whether the rules contain a refund power, any restrictions, and the scheme's funding position on buy-out and low dependency bases.
- Agree a surplus policy. Trustees and employers should discuss objectives early, including member benefit improvements, security and the tax position.
- Prepare for VFM. Gather performance, cost and service data now, benchmark against peers and consider whether your default arrangement is likely to achieve a positive rating.
- Assess DC scale. Employers using smaller master trusts or group personal pensions should ask providers how they will meet the scale test, and consider whether a change of provider is likely before 2030.
- Design retirement defaults. Begin work on a pension benefits strategy and member communications for default decumulation solutions.
- Resolve Virgin Media exposure. Identify historic amendments to contracted-out benefits and whether actuarial confirmation is needed and obtainable.
Surplus release will be a negotiation, not a formality. Trustees will want independent covenant, actuarial and legal advice, and are likely to seek member benefits, security or contributions in return. Employers who start the conversation early, with a clear proposal, usually get further than those who wait for the regulations.
Illustrative scenario: a closed DB scheme in surplus
This scenario is illustrative only and does not describe any real client or case.
A mid-sized UK manufacturer sponsors a closed DB scheme that is comfortably funded on a low dependency basis but not quite at buy-out level. Its rules contain no power to refund surplus to the employer. The finance director asks whether the reforms in the Pension Schemes Bill mean the company can now access some of that surplus to fund investment.
Under the Act, the trustees could pass a resolution to introduce a refund power, but only once regulations bring the provisions into force and set the threshold and conditions. In the meantime, the company and trustees can agree a framework: the funding level at which a refund would be considered, a share of surplus to be used for member benefit improvements, ongoing security for the scheme and how the decision will be documented. The company should also compare this with running on the scheme for longer or buying out, since the right answer depends on covenant strength, investment risk and member outcomes.
Risks and common mistakes
Treating Royal Assent as the start date for everything
The Pension Schemes Bill became law in April 2026, but most of its provisions need regulations before they bite, and those regulations will be consulted on first. Acting as if the surplus power or VFM ratings already apply risks wasted cost and poor decisions. Equally, waiting for final regulations before doing any preparatory work leaves too little time. Track the consultations, and use the time to gather data and agree policy.
Assuming employers have a right to surplus
The new power belongs to trustees. They decide whether to adopt it and whether to use it, applying their usual duties. An employer that approaches surplus as an entitlement is likely to meet resistance. A proposal that shares value with members, maintains strong security and is supported by robust actuarial evidence has a much better chance. Disputes over surplus can be costly, so careful negotiation and documentation matter.
Leaving DC provider choice until the scale deadline
Employers using smaller providers may find that their default arrangement is consolidated or closed in the run-up to 2030. Changing provider involves due diligence, member communications and sometimes complex bulk transfers. Employers should ask providers now how they plan to meet the scale test and VFM standards, and diarise a review well before the deadline.
Overlooking Scotland and Northern Ireland differences
Much of the Act extends to England, Wales and Scotland. Northern Ireland has its own pensions legislation, and corresponding provision may be made separately. Employers with schemes or members across the UK should check the territorial extent of each provision and any Northern Ireland equivalents before assuming a reform applies uniformly.
Cross-border angle and next steps
International groups with UK schemes, including businesses headquartered in South Asia and the Gulf, should factor the reforms into corporate transactions. Surplus potential, superfund options and Virgin Media exposure all affect valuation and risk allocation when buying or selling a UK business with a DB scheme. Our pensions team works with our employment and corporate lawyers on these questions, and on employer duties such as auto-enrolment.
The DWP has published an evaluation strategy for the Act, which shows the outcomes it will monitor. Expect further consultations on surplus, VFM, small pots and scale through 2026 and 2027. To discuss how the Pension Schemes Bill reforms affect your scheme, contact our London office at Holborn Gate, 330 High Holborn, London WC1V 7QH, or email info@trw.co.
Frequently asked questions
01Has the Pension Schemes Bill become law?
Yes. The Pension Schemes Bill received Royal Assent on 29 April 2026 and is now the Pension Schemes Act 2026. However, most of its measures, including DB surplus release, the DC scale test, the value for money framework and small pots consolidation, need regulations or FCA rules before they take effect. A few provisions are already in force, including the Virgin Media legislative fix from Royal Assent and the Pensions Ombudsman's competent court status from 29 June 2026.
02Can employers now take surplus from DB pension schemes?
Not yet in the way the Act envisages. The Act gives trustees a statutory power to modify scheme rules to allow surplus to be paid to the employer, but it needs regulations to come into force and to set the funding threshold and conditions, expected to be based on low dependency funding. The decision belongs to trustees, applying their existing duties. Government statements have indicated the regulations and guidance should arrive around late 2027, but employers can begin discussions with trustees now.
03What is the £25 billion megafund requirement?
Master trusts and group personal pension schemes used for auto-enrolment will need at least one main scale default arrangement holding £25 billion or more by 2030. A transition pathway is expected for arrangements that reach at least £10 billion by 2030 with a credible plan to hit £25 billion by 2035, and a new entrant pathway for genuinely innovative new schemes. The details will be set by regulations, and the requirement will start no earlier than 2030.
04What does the value for money framework mean for DC schemes?
Trustees and providers of DC arrangements will have to assess and publish performance against prescribed metrics on investment returns, costs and service quality, and give each arrangement a rating. Arrangements that do not deliver value will have to take specified actions, set out in the Act and the regulations made under it. The detail will come from DWP regulations and FCA rules following consultation, and first assessments are expected from 2028.
05Does the Pension Schemes Act force schemes to invest in UK assets?
Not immediately. The Act contains a reserve power allowing the government to set asset allocation requirements for relevant master trusts and group personal pension default funds, but it is tightly limited: no more than 10% of default fund assets in qualifying private assets and 5% in UK assets, not before 1 January 2028, and with a savers' interests test. The government has described it as a backstop to voluntary industry commitments under the Mansion House Accord.
06What should trustees do now?
Trustees should map which reforms affect their scheme and when, review scheme rules on surplus and the funding position, start gathering value for money data, and plan for default retirement income solutions. DB trustees should confirm whether any historic contracted-out amendments need a Virgin Media actuarial confirmation. DC trustees and employers using smaller providers should consider how the scale test may affect them. Keep records of decisions, and take legal, actuarial and covenant advice where significant choices arise.
Sources and official materials
- Pension Schemes Act 2026 — The enacted legislation
- Pension Schemes Act 2026, section 9 — Power to modify schemes to allow surplus payments
- Pension Schemes Act 1993, section 37 — Contracted-out rights at the heart of Virgin Media
- DWP: Pension Schemes Act 2026 Evaluation Strategy — How the government will monitor the reforms
- The Pensions Regulator — Regulator for workplace pension schemes and superfunds
General information only, current as at 21 October 2026. It is not legal advice and does not create a solicitor–client relationship. It reflects the law of England and Wales unless stated otherwise; Scotland and Northern Ireland have separate legal systems, and the law changes frequently. Check current official sources and take advice on the facts of your matter.