Chancellor Rachel Reeves is preparing to launch a sweeping review of the UK pensions system alongside a new legislative package that promises to reshape retirement savings for millions.
The Pension Schemes Bill, which is currently undergoing its second reading in Parliament, introduces a series of reforms designed to streamline pension management and improve returns.
According to the government, the proposed changes could lead to an average retirement uplift of up to £29,000 for UK workers. The legislation has received backing from major stakeholders in the pensions sector and marks one of the first major financial reforms under Reeves’ leadership.
Small Pots to Be Merged Into Accredited Schemes
One of the central measures in the bill is the consolidation of small pension pots—accounts with less than £1,000 each—into a single accredited scheme. According to the Department for Work and Pensions, this change could significantly reduce administrative inefficiencies and help savers avoid losing track of their funds over time.
The bill also introduces a mandatory “value for money” requirement for all future pension plans. Schemes will need to demonstrate adequate returns relative to costs, ensuring that savers can compare performance across providers.
Pensions Minister Torsten Bell stated: “We’re ramping up the pace of pension reform, to ensure that people’s pension savings work as hard for them as they worked to save. The measures in our Pension Schemes Bill will drive costs down and returns up on workers’ retirement savings – putting more money in people’s pockets to the tune of up to £29,000 for an average earner and delivering on our Plan for Change.”
These changes are expected to support 20 million individuals with existing pension savings and are part of the government’s broader Plan for Change initiative.
Focus On Scale, Investment and Retirement Access
The proposed legislation includes new provisions for the creation of large multi-employer pension schemes—so-called “megafunds”—with a minimum fund size of £25 billion. The aim, according to the government, is to cut costs and improve access to higher-return investment vehicles.
Zoe Alexander, Policy Director at the Pensions and Lifetime Savings Association (PLSA), described the bill as “a significant milestone”, noting its capacity to remove complexity and increase efficiency across the system.
Defined Benefit (DB) pension schemes will also be given increased flexibility, enabling them to release part of a projected £160 billion surplus to support employer investment strategies. Meanwhile, default retirement income pathways will be standardized across all pension providers to simplify choices for savers approaching retirement.
In parallel, Reeves is set to establish a commission to review systemic shortcomings in the pension system, particularly around pension adequacy and disparities among worker groups.
No date has been confirmed for the start of this review. Minister for Local Government Jim McMahon highlighted that the bill will also support local pension schemes, with assets projected to reach £1 trillion by 2040, reinforcing investment in regional economic growth.
