The UK government has 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 defined contribution (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 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 UK’s Department for Work and Pensions (DWP) said larger schemes should be able to deliver better governance, broader investment opportunities and lower costs for members, while also developing the scale and capability needed for the future. However, it stressed that how scale is achieved “matters” and should not be fragmented across multiple arrangements.
The discussion paper seeks views on key aspects of how scale should be assessed to inform the detailed regulations, which are already being drafted.
The DWP said it has a particular interest in the operation of default arrangements and investment strategies in multi-employer DC schemes, as well as connections between schemes within the same corporate group.
Under the proposals, schemes would need to hold at least £25bn in a main scale default arrangement (MSDA) by 2030 to continue receiving AE contributions.
The government said it expects the MSDA to sit at the “centre of a scheme’s investment”, with default contributions invested through that arrangement unless there is a good reason to use an alternative fund.
The Act also gives the government powers to restrict the creation of new default arrangements. It intends to review all existing non-scale default arrangements in 2029.
The government said MSDAs would not be permitted to consist of a shared pool of assets from unconnected schemes and would not include assets from stakeholder pension schemes or single-employer trusts. However, it has invited the industry to explain whether, and how, a wider set of assets could support the delivery of scale.
It is also seeking views on the number of default arrangements across pension schemes, whether providers are planning to consolidate those arrangements, whether measuring scale through assets under management could create practical challenges, and whether alternative metrics should be considered.
The Act also requires assets within an MSDA to be managed under a common investment strategy (CIS).
The DWP said the CIS will be central to determining whether a scheme meets the scale threshold by ensuring assets are invested in a sufficiently consistent way to deliver the benefits of scale. The framework would allow variations based on members’ ages to accommodate both lifestyling and target date fund strategies.
The government is seeking feedback on whether AE default arrangements currently incorporate factors beyond age, how those factors are reflected in investment strategy, and how schemes mitigate any loss of scale benefits.
It is also asking whether limiting variation to age alone would present challenges and whether other forms of variation should be permitted.
The Act also allows connected schemes to share an MSDA, provided they use a common investment strategy and meet the connection criteria that will be set out in secondary legislation.
The government said providers with more than one multi-employer DC workplace pension scheme will be able to combine assets across their master trusts and group personal pensions (GPPs) into a single MSDA.
It is seeking information from providers intending to meet the scale requirement through shared MSDAs on how connections are established within their corporate structures, including the relationship between the funder or strategist of a master trust and the provider of a GPP.
The DWP is particularly interested in understanding any operational challenges connected schemes may face in combining default arrangements into an MSDA, making investment decisions and managing pooled assets under a common investment strategy.
It added that it will hold industry roundtables to discuss the key elements of the policy and continue engaging with stakeholders as it develops draft regulations, with a formal consultation planned for the latter part of 2027.
