Pension Schemes Act promises up to £29,000 boost for 20 million workers

The United Kingdom’s retirement savings framework underwent a major transition on 29 April 2026, when the Pension Schemes Act officially became law. Designed to address long-standing fragmentation within the industry, the legislation aims to enhance the retirement outcomes for approximately 20 million workers. Government projections indicate that an average earner could see their pension pot increase by up to £29,000 by the time they reach retirement, driven by improved investment performance, reduced administrative costs, and more efficient management of savings.

The legislation addresses the issue of small, dormant pension pots that workers frequently accumulate when changing jobs. These individual pots, often valued at £1,000 or less, are frequently lost or left in accounts that incur high fees, which can erode total returns over time. Under the new law, these small pots will be subject to automatic consolidation into schemes that are certified as delivering good value for money. This shift is intended to help savers maintain a clearer view of their total retirement assets while minimising the impact of charges.

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A core component of the reform is the introduction of a Value for Money (VfM) framework. This mandatory system requires pension scheme managers and trustees to demonstrate that their products are actively providing value to members. The framework is intended to protect savers from remaining in consistently underperforming schemes. Furthermore, the Act mandates the establishment of large, multi-employer “megafunds” with a minimum size of £25 billion. By pooling assets, these funds are expected to achieve economies of scale, drive down costs, and expand access to a broader, more diverse range of investment opportunities.

The reform agenda also extends to the Local Government Pension Scheme (LGPS). Plans are in place to consolidate approximately £400 billion of LGPS assets into a series of expert-managed pools. The objective for these pools is to foster investment in infrastructure, housing, and clean energy, with total assets projected to reach £1 trillion by 2040. According to Jim McMahon OBE, Minister for Local Government and English Devolution, this transition will ensure the scheme is “fit for the future” and capable of strengthening investment in local communities to accelerate growth.

Defined benefit (DB) pension schemes, historically considered the “gold standard” of retirement provision, are also affected by the new rules. The Act provides greater flexibility for these schemes to release a collective £160 billion in surplus assets. This measure is intended to provide support for employers and benefit scheme members. the legislation seeks to simplify the transition from saving to drawing a pension by requiring schemes to offer clear, default retirement income routes, assisting savers in managing their transition from lump sums to sustainable regular income.

The government and industry stakeholders have described these changes as a necessary evolution for the UK pension sector.

"We’re ramping up the pace of pension reform, to ensure that people’s pension savings works as hard for them as they worked to save."

Torsten Bell, Minister for Pensions

Industry groups, including the Pensions and Lifetime Savings Association (PLSA), have expressed support for the reform package. Zoe Alexander, Director of Policy and Advocacy at the PLSA, stated:

"The introduction of the Pension Schemes Bill is a significant milestone, bringing forward necessary legislation to enact important reforms that have the full backing of the pensions industry."

Zoe Alexander, Director of Policy and Advocacy

She added that once fully implemented, the measures should reduce administrative costs and remove complexity for savers, helping ensure that schemes maximise the value provided to their members. Beyond the immediate legislative changes, the Act lays the groundwork for a broader Pensions Review. This initiative will examine long-term adequacy and sustainability, with a particular focus on ensuring that lower-income workers and other underserved groups are not excluded from the benefits of the reforms. Further details regarding the government’s delivery roadmap and the progress of the Pensions Commission are expected to be discussed as the programme enters its delivery phase, with a final report from the Commission anticipated early next year.