The UK pensions industry has broadly backed the government’s plans to increase scale in workplace defined contribution (DC) pension funds, but is urging ministers to avoid a rigid framework that could restrict investment choice and innovation.
In July, the UK government launched a discussion paper seeking industry views on how the scale requirements introduced under the Pension Schemes Act 2026 should operate ahead of a formal consultation planned for the second half of 2027.
The Act sets out the government’s ambition to consolidate the DC pensions market by requiring schemes used for automatic enrolment (AE) to reach £25bn in assets by 2030.
Pension funds with at least £10bn in total assets will be able to apply for a transition pathway if they are on track to reach the £25bn threshold by 2035. Schemes that fail to meet the requirements will no longer be eligible to receive AE contributions.
The ambition has been broadly welcomed by commentators, with Standard Life highlighting the scale can bring advantages, including improved long-term outcomes, stronger governance and more sophisticated investment strategies.
However, while consolidation has an important role to play in creating a more efficient pensions market, Emma Furlonger, managing director of workplace and retail intermediary at Standard Life, warned that it is essential that the introduction of a Main Scale Default Arrangement (MSDA) framework focuses on the outcomes being delivered for members rather than prescribing a single investment approach.
She said: “As investment strategies evolve, providers must retain enough flexibility to meet common investment objectives through different structures and products where this is in savers’ best interests.”
Furlonger added that regulations should recognise that scale can already be achieved through shared investment capabilities, governance frameworks and underlying investment building blocks rather than identical fund structures or asset allocations.
She noted this will help avoid unnecessary fund mergers or member movements that do not improve outcomes.
TPT Retirement Solutions echoes the call for flexibility, saying the regime requires a detailed framework that aligns with how assets are invested and governed in practice.
The provider said that measures to increase scale will have to recognise existing scale, measure it consistently and avoid creating artificial distinctions or governance conflicts.
TPT believes the regime should support larger, better-governed investment pools without overriding sound investment design, excluding assets that already contribute to scale, or weakening the accountability of trustee boards.
Ruari Grant, head of policy at TPT, said: “Ultimately, scale should be a means to achieving better outcomes for members, rather than an end in itself. The rules therefore need to distinguish between artificial fragmentation and genuinely different investment propositions, while giving trustees sufficient flexibility to design strategies that effectively meet members’ needs.”
Guidance and flexibility needed
The Society of Pensions Professionals (SPP) has also highlighted “critical areas” it believes require urgent regulatory clarity and greater flexibility.
This includes an “urgent need” for interim guidance, as it believes the proposal by the Department for Work and Pensions (DWP) to wait until late 2027 for draft regulations creates a “prolonged period of uncertainty”.
The society is urging the government to issue interim guidance on policy direction, exemptions, and transitional arrangements to prevent providers from pausing vital strategic investments.
SPP also called for assets under management to be used as the core scale metric, with bespoke default arrangements and self-select options using common building blocks to be included in the MSDA calculations, to ensure employer engagement is not penalised and scheme scale is not understated.
SPP has also cautioned the government against restricting Common Investment Strategy (CIS) variations strictly to chronological age. It explained that restricting CIS flexibility threatens target-date funds, limits decumulation and guided retirement pathways and jeopardises the viability of Sharia-compliant and ESG-focused default options.
SPP is also calling for flexibility beyond age-based criteria, a replacement for the restrictive ‘common control’ test, and measures to address joint-governance conflicts.
Chris Austin, chair of the SPP investment committee, said: “While the SPP understands the government’s goal of leveraging scale to deliver better outcomes for pension savers, clarity and speed are paramount. Waiting until late 2027 for draft regulations leaves the industry in limbo, threatening to stall vital investment and stifle innovation at a time when providers should be preparing for 2030.”
He added: “Furthermore, scale cannot be a one-size-fits-all exercise. An overly rigid, age-only definition of investment strategies risks penalising engaged employers, undermining guided retirement pathways, and cutting off essential choices like Sharia-compliant or ESG-focused funds. Government must introduce sensible flexibility and early guidance so that the industry can execute these changes effectively.”
