During their general election campaign, Keir Starmer and Rachel Reeves promised a review of the pensions industry, with the intention of improving outcomes for savers. They also hoped to increase investment in UK businesses.
Shortly after taking office, the government announced the Pension Schemes Bill, with limited details about the changes they planned to make. The chancellor also gave a timeline for a wider review of the pensions industry and promised to introduce reforms based on the recommendations.
It appears the government are ready to begin implementing some of these changes and on 5 June 2025, the chancellor unveiled the completed Pension Schemes Bill.
Here’s everything we know so far.
Small pension pots worth £1,000 or less will be automatically merged
Under the auto-enrolment rules, your employer must automatically set up a pension for you and contribute if you meet certain earning requirements.
This often means that when you move to a new job, you start paying into a new pension scheme. Your old pensions are still there, but they can be forgotten. As a result, many people have several small pensions they might not know about.
One measure outlined in the Pension Schemes Bill aims to address this problem and ensure you don’t lose old savings. To achieve this, any pots worth less than £1,000 will automatically be consolidated with larger pensions. However, you will be able to opt out if you prefer to keep your pensions separate.
This measure should make it easier to keep track of all your pensions. You may have more control over your savings too, as you can actively manage one pension instead of lots of different pots.
Also, if your current scheme offers a wider range of investment options than your old schemes, you could see more growth on your savings.
The government will consult with the pensions industry and decide on the best way to deliver this consolidation system, with specific regulations to be drafted in 2026.
While this change is likely to be positive for savers, consolidating pensions isn’t always the most suitable choice. As such, when the changes come into effect, you may want to seek professional advice to decide whether you should opt out of automatic consolidation.
Pension schemes will be assessed under the “value for money framework”
Another key policy of the bill is that all pension schemes will be assessed under the “value for money framework”.
A standardised test will measure pension schemes and consider whether they offer true value to savers.
Schemes that don’t pass this test will be required to consolidate with others. The hope is that this measure will change the pension landscape and encourage the creation of a smaller number of high-performing schemes.
The government will also require multi-employer defined contribution (DC) schemes and local government pensions to become part of a “mega-fund” by 2030.
The bill defines a mega-fund as one that manages at least £25 billion in assets.
Like the value for money framework, this policy aims to combine lots of smaller pension funds and potentially give savers better investment returns. Larger funds typically charge lower fees too.
Ultimately, this could mean you see more growth on your pension savings in the future.
Schemes will be required to offer clear default options for generating a retirement income
Much of the new legislation is designed to encourage more growth and make it easier to manage pensions, so savers can build wealth for retirement more effectively.
Yet, there is also legislation to ensure savers can generate an income from their pensions once they retire.
All schemes will now be required to offer a “default pension benefit solution” that generates an income in retirement.
If a pension provider is unable to do this for any reason, they must recommend a suitable scheme that savers can transfer into when they want to draw an income from their pensions.
Having a default pension benefit solution in place may be a positive. However, it’s important to remember that the default option may not be the most suitable choice for your situation.
As such, it’s still important to speak to an adviser and discuss the most effective ways to generate an income in retirement.
We can support you as the changes outlined in the Pension Schemes Bill are rolled out
Now that the government has laid out the Pension Schemes Bill in more detail, changes will begin to take effect in the near future.
As new legislation comes into force, it will become clearer how your pension savings might be affected and whether you need to make any changes to your financial plan as a result.
We can support you during the transition period to ensure that you take full advantage of any new benefits and continue working towards your dream retirement.
Get in touch
If you need guidance about your pensions and other retirement savings, we are here for you.
Please get in touch to find out how our team of VouchedFor Top Rated planners could help today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Workplace pensions are regulated by The Pension Regulator.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation, which are subject to change in the future.