Guidance

Pension Schemes Bill: Scale and Consolidation

Published 9 March 2026

Background

Most individuals automatically enrolled into a defined contribution (DC) workplace pension scheme do not actively engage with how their contributions are invested. Government and industry therefore share the responsibility for ensuring savers receive good outcomes. The Pension Schemes Bill^{[footnote 1]} seeks to implement a wide set of reforms - which are designed to improve value for money, increase transparency, and support a more consolidated and efficient market that delivers better long-term outcomes for members. The scale policy forms a core part of these reforms to the market and aims to ensure members benefit from fewer, larger, and better run schemes that can deliver improved value and stronger, long-term performance.

This paper sets out the Department for Work and Pensions (DWP) policy principles in relation to the scale measures. It is intended to give an overview of the government’s direction of travel ahead of detailed consultation on regulations. It does not replace formal consultation, nor does it anticipate the final regulatory framework.

The Scale Requirement

The government is taking a pragmatic approach to achieving greater scale needed to deliver better outcomes for savers.

The Pension Schemes Bill introduces a requirement for DC multi-employer schemes to operate a main scale default arrangement (MSDA) holding at least £25 billion in assets from 2030, in order to qualify to receive automatic enrolment contributions. The MSDA represents the default investment proposition for members who have not made an active investment choice.

Where schemes operated by the same provider use a common investment strategy and meet relevant legislative conditions, the Bill permits them to hold a combined MSDA. Schemes that are not connected in this way must meet the scale requirement individually.

Government will consult on the assets that may count towards the MSDA threshold, and regulations will set out adjustments and exclusions relevant to the calculation.

Pathways to Scale

To support the transition to scale, in addition to the primary route set out above, government has established two additional routes for schemes:

1. The transition pathway – giving existing smaller schemes more time to reach the full, scale requirement.

2. The new entrant pathway – enabling new schemes to enter the market and grow to scale while offering a genuinely innovative proposition.

These pathways aim to balance the need for a strong, consolidated market with the benefits of innovation, competition and orderly transition.

Transition pathway

Overview

The government’s consultation response^{[footnote 2]} to the Pensions Investment Review highlighted that some schemes would need time to grow or consolidate to meet the £25 billion MSDA requirement. The transition pathway provides a temporary, time-limited route allowing eligible schemes to continue to receive automatic enrolment contributions whilst progressing towards full scale compliance.

Schemes will need to apply to the appropriate regulator for approval before the scale measures commence. Once approved, the pathway will operate for five years.

Conditions for approval

A scheme will be eligible for transition pathway relief if it:

• holds at least £10 billion in its MSDA by 2030

• can demonstrate a credible plan to meet the scale requirement of £25 billion by the end of the transition period; and

• meets further prescribed conditions set out in regulations, which are expected to include criteria relating to governance and investment capability

Who is this pathway for?

The transition pathway is intended for existing schemes that cannot reach £25 billion by 2030 but are on course to do so by 2035. Based on historical market growth rates, government analysis suggests that some schemes with £5 billion fund today, could reach £25 billion within 10 years based on organic growth.

Government firmly encourages schemes to consider the full range of options available to achieve scale, including through scheme growth and consolidation, where appropriate. The Pensions Regulator (TPR) will soon publish a statement setting out high-level principles to support the development of a credible growth plan, as well as analysis of the key drivers of scale. The Financial Conduct Authority (FCA) will also seek to ensure a consistent approach across the market.

Considerations for schemes considering the transition pathway

Schemes that intend to apply to use the transition pathway should begin preparing early by developing a clear, credible plan for how they will reach scale. Schemes should consider:

• Developing a credible plan to build to scale – including how the scheme intends to fund growth, the expected revenue streams over the pathway period, projected operational and technical costs, and how investment planning and risk will be managed as the scheme grows. We expect schemes will grow organically, through continued employer and employee contributions, securing new business and inorganic growth including through consolidation.

• Building investment capability (including in-house expertise) – demonstrating how investment functions will be strengthened in line with the expectations of a scheme at scale, including the ability to access a broader range of investments to help increase diversification, and negotiate lower fees, all aimed at improving returns for members.

• Building governance capability– setting out how governance arrangements will evolve to support the transition to scale and how the scheme will be able to operate effectively at scale once it exits the pathway. This should include plans for delivering on wider pensions reforms such as value for money and guided retirement outcomes.

• Ensuring appropriate expertise is in place - including identifying the skills, personnel and systems required to support scaled operations across both governance and investment functions, and how these will be developed during the pathway period. Key skills will include expert market knowledge in investment and governance as well as wider skills such as risk management and communications.

• Developing robust growth estimates - supported by clear underlying assumptions, alongside analysis of factors that may cause growth projections to vary. (TPR’s statement will provide additional detail on this area).

• Setting out other essential planning features – including key delivery milestones, how progress will be monitored and what contingency plans will be put in place, if milestones are not met.

We expect regulatory check points to be established across the transition pathway 5-year period, to ensure schemes are on track to reach scale by 2035.

Government may also expect providers to be able to evidence to the relevant regulator actions that they have already taken ahead of applying to join the pathway and demonstrate a clear trajectory towards building sufficient scale.

New Entrant Pathway

Overview

Whilst scale is important, the government also wants to support new and innovative providers entering the market. The new entrant pathway ensures that new schemes can develop, attract members, and ultimately reach scale – enabling innovation to continue in the market whilst maintaining the delivery of good outcomes for members.

The defining feature of this pathway is the requirement for ‘innovative product design’, which ensures that new entrants make a distinct and truly new contribution to the market rather than replicating existing offerings.

Conditions for approval

To qualify for approval for new entrant pathway relief, a scheme must:

• have no existing members

• demonstrate strong potential growth sufficient to meet the scale requirement

• offer an innovative product design, providing a materially different offering compared to existing market participants; and

• meets further prescribed conditions set out in regulations, which are expected to include evidence of a credible plan to meet scale and to develop investment capability

This pathway is designed for truly new schemes with the capacity to grow sustainably. Existing schemes that consider themselves as ‘new’ should be looking at the transition pathway.

Interaction with wider DC reforms

Providers should consider these scale measures alongside wider reforms in the DC landscape, including:

• Pensions Dashboards

• Value for Money Framework

• Small Pots consolidation

• Guided Retirement

Master Trusts should also take account of the trustee consultation^{[footnote 3]} that was launched on 15 December 2025 and any implications on their governance arrangements.

Taken together these reforms support the government’s drive towards a consolidated DC pensions market seeking better outcomes for members.

Next steps

Government recognises the strong call from industry to see further detail on scale in secondary legislation, as soon as practicable, following Royal Assent, and in line with our published Pensions Roadmap^{[footnote 4]} .

DWP and regulators will continue to work closely with industry, including through formal consultation to support delivery of these reforms.

1. Pension Schemes Bill publications - Parliamentary Bills - UK Parliament ↩

2. Government response, unlocking the UK pensions market for growth - PDF ↩

3. Trust-based pension schemes: Trustees and governance, building a stronger future - GOV.UK ↩

4. Workplace pensions: a roadmap - GOV.UK ↩