Chancellor confirms reforms to DC pensions to boost UK growth
Published on 3rd June 2025
A final report and consultation response spell major change

The government has released the final report on phase one of its landmark pensions review, together with the responses to its recent consultations on unlocking the UK defined contribution (DC) pensions market for growth and ensuring the Local Government Pension Scheme (LGPS) is "fit for the future".
Phase one outcome
The first phase of the government's pensions review and the related consultations on changes to the UK DC landscape and to the LGPS have focused on improving outcomes for members and boosting UK growth. The aim is to achieve these goals by moving to a pensions landscape where there are a smaller number of larger pension funds benefitting from improved governance that are able to access economies of scale and to consider – and negotiate lower fees for – a wider range of investments, including UK productive assets.
The final report on phase one of the pensions review summarises the outcome of those consultations and lists the changes that will be taken forward. It also explains what the government is doing to "boost the depth and volume" of the pipeline of infrastructure, housing, regional and high-growth UK company investments available to pension schemes.
In terms of next steps, there is confirmation that key legislative changes will be included in the Pension Schemes Bill 2025, which is widely expected before the parliamentary summer recess. There is also confirmation that the government will publish a "roadmap" to show how these changes fit with wider reform and a statement that phase two of the pensions review will be launched in the coming months. This second phase will explore "longer term challenges around retirement adequacy and outcomes", including potential changes to automatic enrolment (AE).
The response to the consultation on unlocking the UK DC pensions market for growth confirms that the government will proceed with the following changes.
Main scale default arrangements
Each "multi-employer AE workplace pension provider or scheme" – which is expected to mean the trustees of DC master trusts and the providers of group contract-based schemes used for automatic enrolment – will be required to have at least one "main scale default arrangement".
As a general rule, each main scale default arrangement will need to have a minimum of £25 billion in assets under management (AUM) by 2030. However, any provider or master trust that will have at least £10 billion in AUM in a main default arrangement by 2030, has a credible plan to grow that default to at least £25 billion by 2035 and is able to meet a series of investment and governance conditions, will be able to apply to regulators in 2029 to be placed on a transition pathway.
There will be some exemptions from the scale requirement. For example, it will not apply to DC and defined benefit hybrid schemes that are only available to a closed group of employers related through their industry or profession (not legally) or to default arrangements that serve protected characteristics such as religion. Collective defined contribution schemes will also be exempt to avoid stifling innovation. However, the government has stated that they will "naturally have a degree of scale and invest productively". Legislation will provide a pathway "for new entrants with innovative products offering something significantly different" to reach scale.
Master trusts and providers who cannot meet the main scale default arrangement requirement by 2030 (or 2035) will no longer be able to participate in the AE market and will be expected to consider consolidation or wind-up.
Recognising the potential impact of this on employers, the government has said that it will "work to introduce support for employers who will need to move to a scheme or provider with scale and ensure that they do not inadvertently breach their automatic enrolment duties".
New and existing default arrangements
The government has decided against setting a formal limit on the total number of default arrangements that a DC master trust or contract-based provider can have. It has, however, said that DC master trusts and providers will need to seek regulatory approval before establishing any new default arrangement. They will also be expected to "proactively consider" consolidating all existing default arrangements into their main scale default arrangement(s). The upcoming value for money (VfM) framework will help with this.
In or around 2029, the government will run a ministerial-led review to assess progress in consolidating defaults. The Pension Schemes Bill 2025 will include a "legislative underpin" to allow it to "tackle any remaining fragmentation".
Contractual override
To make sure that the providers of contract-based schemes have the power to transfer members into a main scale default arrangement without their consent, the Pension Schemes Bill will introduce a new contractual override. Legislation already allows the trustees of DC master trusts to do this.
Stringent member protections will apply: that is, a "best interests" test and a right to opt-out. Providers will also have to notify and may have to consult any "active employer". Use of the override will not, however, be limited to the consolidation of default funds into main scale default arrangements. It could also be used where, for example, the upcoming VfM requirements mean that a provider needs to make improvements to an arrangement or move savers to an arrangement that provides better value.
Investment pledges
The commitment in the recent Mansion House Accord by a number of DC pension providers to invest 10% of their main default funds in private markets, including 5% in the UK, has encouraged the government not to mandate productive asset investment at this time. The Pension Schemes Bill will, though, include a reserve power which will allow the government to set targets for pension schemes to invest "in a broader range of private assets, including in the UK, for the benefit of savers and for the economy." The government has also explained how it intends to keep track of asset allocation by major DC providers.
New legislation
The Pension Schemes Bill 2025 will contain the primary legislation needed to make these changes. Much of the detail (such as the full characteristics of a main scale default arrangement, the conditions for approval of any new default arrangement and the specific requirements for the transition pathway) will be set out in draft regulations on which the government will consult. The Financial Conduct Authority will consult on rules to map out the detail of the statutory override for contract-based schemes.
Osborne Clarke comment
The final report on phase one of the government's pensions review and the DC consultation response spell major change for DC master trusts and contract-based DC schemes used for AE – and for the employers who use them.
The new requirements will not apply where employers sponsor their own DC or hybrid trust-based pension scheme. The Pension Schemes Bill will, however, introduce a new VfM framework. This could raise the question of consolidating; that is, terminating a DC scheme or section and transferring its members to a DC master trust or other arrangement that can provide better value for members. The changes could affect the choice of replacement arrangement. They could also affect the choice of replacement scheme for any employer looking to close a DB scheme to the future accrual of benefits and selecting a replacement DC arrangement.