The Pension Schemes Act 2026 for FCA-regulated pension providers and other firms: new requirements, opportunities and challenges

The long journey of the Pension Schemes Bill through Parliament came to an end on 29 April 2026 and the Bill became the Pension Schemes Act 2026. The Act is important for trustees, providers and employers: it launches a wide-ranging suite of reforms which undoubtedly have the potential to reshape the pensions industry over the next few years. 

We’ve downloaded the key takeaways for the whole sector in our CMS Legal Update here. In this Legal Update we take a look from the perspective of FCA-regulated pension providers and focus on what firms involved with contract-based and workplace schemes need to know. As well as a host of new requirements on providers, the Act could bring significant opportunities for pension provider firms in their strategic transactions, and prospects for other product provider firms to offer innovative new product offerings to provider firms.

A new statutory product transfer mechanism: the Contractual Override (Part 7A Financial Services and Markets Act 2000)

Alongside the new compliance requirements for FCA-regulated pension providers (see below), the Act introduces a mechanism for providers of auto-enrolment schemes and other workplace pensions to make certain unilateral changes to their schemes and to transfer members’ pots to different schemes or arrangements within schemes without members’ consent.

This power is subject to important safeguards:

• The provider must first satisfy a ‘best interests test’, which requires a reasonable conclusion that the change / transfer is likely to achieve a better outcome for directly affected members taken as a whole. 
• An independent person must certify that the test is met. 
• A unilateral change notice must be sent to affected members, with a mandatory notice period.

This change is significant for workplace pension providers, as it provides a statutory mechanism for scheme consolidation and investment changes without the burden of individual member consent.

Although the mechanism was introduced alongside, and partly to support, other new regimes in the Act that may impose consolidation or transfer obligations on providers, the Act itself does not limit the mechanism to those situations. HMT and the FCA will both still need to make regulations and rules that may set a more detailed scope for the mechanism and the requirements firms must comply with when using it, but as drafted it could in theory be used in a wide range of transactions between workplace pension providers. This aligns with Government commentary citing an intention to create broad equivalence between contract-based and trust-based scheme providers that can use existing legislative bulk transfer processes.

Significantly, a transfer effected under the new Contractual Override mechanism in Part 7A FSMA will be specifically excluded from being an ‘insurance business transfer scheme’ subject to Part 7 of FSMA, giving insurers that provide in-scope pension products comfort that a Part 7 process is not needed to transfer customers that can be transferred under the Contractual Override regime.

New requirements for FCA-regulated pension scheme providers

The Act also lays the foundations for a number of new requirements on providers of in-scope schemes. Much of the detail of the regimes is still to come through FCA and DWP regulations, but the Act sets the framework for several key changes to the law:

1. Guided Retirement (a decumulation duty)

The Act includes a framework for occupational DC schemes to design and make available ‘default pension benefit solutions’ to members, which will apply unless the member chooses to receive pension payments under a different solution. Although the framework will not apply directly to FCA-regulated pension providers, the Act requires the FCA to make equivalent rules for FCA-regulated  workplace personal pension schemes.

Default solutions made available under the framework will have to be designed to provide a regular retirement income. When determining what default solution to make available, providers will have obligations to take into account various factors to do with their members’ needs and interests, personal circumstances, and pre-existing benefits choices.

Once detailed regulations are made fleshing out the framework, providers may also be required to increase the levels of practical support they provide to members faced with retirement options decisions, and may be required to provide them with information based on their own particular circumstances to assist with these decisions.  Regulations may also require providers to monitor the rate at which a saver is taking their benefits and inform them if the provider considers the rate should be reviewed.  

This direction of travel is in keeping with the FCA’s aims to bolster consumer support with complex personal finance decision making through the Targeted Support regime (see our most recent Legal Update here) and the wider Consumer Duty.

There may also be potential for significant collaboration opportunities for third-party providers of retirement solutions (such as insurers offering annuities) as a consequence of the new requirements on pension providers, but this will also bring the need to navigate product providers’ own compliance requirements in this new context.

2. Main Scale Default Arrangement Requirements (DC scale)

By 2030, workplace group personal pension schemes (but not schemes where all members are required to make a choice about the investment of their fund) will have to have a ‘main scale default arrangement’ with a minimum of £25 billion of assets managed under a common investment strategy across connected schemes. This applies unless ‘transition pathway relief’ (for schemes with at least £10 billion in assets and a credible growth plan) or ‘new entrant pathway relief’ (for new, innovative schemes with no existing members but strong growth potential) are available, or if the relevant regulator is satisfied that consolidation would improve member outcomes.

The FCA will separately have the power to make regulations restricting schemes from creating new default arrangements that don’t meet the scale requirements unless approved by the FCA, and (following a public review of existing arrangements) to require existing non-scale default arrangements into main scale default arrangements.

3. Asset Allocation (investment mandating powers)

The regulators have a backstop power to make regulations mandating that up to 10% of assets held in main default funds of group personal pension schemes (but not schemes where all members are required to make a choice about the investment of their fund) are invested in specified kinds of investments, and up to 5% in assets of a UK-specific description. Schemes will be able to apply to suspend the asset allocation requirement on the basis that would likely not to be in the best interests of members of the scheme (known as the savers’ interests test).

The regulators can only use this power once, and if regulations haven’t come in before the end of 2032 the power will fall away. The framework will also be repealed in full in 2035.

4. Small Dormant Pots consolidation

Auto-enrolment scheme providers will be required to consolidate (i.e. transfer) small dormant pots (£1,000 or less, with no contributions for 36 months and no relevant member investment instructions) into specialist ‘consolidator’ schemes. Under the proposed regime, a prescribed ‘destination proposer’ will identify a consolidator scheme to which small pots should be transferred.

FCA-regulated pension providers will themselves be able to notify the FCA that they want their schemes to be consolidator schemes. The FCA must maintain a public list of FCA-regulated consolidator schemes and make rules regulating these schemes.

5. Value for Money framework

The Act sets out the framework for the Value for Money regime that will apply to occupational schemes. The framework in the Act will not apply to FCA-regulated pension schemes but the FCA’s equivalent rules, which have already been consulted on, will apply to in-scope schemes. See our previous CMS Legal Update on the FCA’s rules here.

Next steps for FCA-regulated providers

The breadth of the new requirements means almost all FCA-regulated providers will need to review their arrangements and map where they will be affected. The primary legislation is now in place, but much of the detail of how key reforms will operate in practice is still to come. Expect several consultations over the coming months and years on regulations and FCA rules to fill in the detail.