Pensions Bulletin 2025/03

Consolidating the DC market – consultation closes 

The Government’s consultation on “Unlocking the UK pensions market for growth” closed on 16 January 2025. This was one of the consultations launched as part of the Chancellor’s Mansion House speech in November 2024 which, in this particular case (see Pensions Bulletin 2024/45), outlined proposals to improve investment in productive assets through Defined Contribution (DC) scheme consolidation. 

The consultation suggested introducing minimum size requirements for, and to limit the number of, default arrangements for multi-employer DC schemes, addressing pricing disparities, enabling contractual overrides for easier transfers and also adding a duty on employers to consider the value aspect of the pension arrangements they make available for their employees. The aim was to enhance member returns, stimulate economic growth, and refocus pension strategies on long-term value. 

LCP’s response 

LCP, as one of the industry’s thought leaders, responded to the consultation. We raised concerns on some of the proposed changes, including forced scheme consolidations and size thresholds, emphasising risks to member outcomes and market innovation.  

We suggested an alternative “comply or explain” regime focusing on a "productive assets test" and enhancing investment in domestic productive assets without disrupting existing high-performing schemes. We advocated for gradual, cautious consolidation and regulatory clarity while considering employers' contributions and reducing barriers to productive finance. 

We also summarised our views in the pensions press, stating at the end that “our advice to ministers is to be explicit about what they want to achieve and to regulate for that rather than using the proxy of scale and hoping that this will indirectly and eventually lead to the same outcome.” 

Other responses

The Pensions and Lifetime Savings Association (PLSA) stressed that while larger pension schemes can benefit from economies of scale, stronger governance, and diversification, scale alone won't guarantee increased UK investment. It warned that radical consolidation could disrupt reforms already underway and urged a focus on incentivising voluntary UK investments. The PLSA advocated for collaboration between schemes and the Government to set achievable targets and ensure adequate supply of investable assets. The PLSA also recommend balancing fiduciary duties with ambitions for economic growth.

The Society of Pension Professionals (SPP) had concerns about unintended consequences from the proposed pension reforms, such as setting a minimum of £25bn in assets under management (AUM). The SPP recommended a smaller threshold of £5bn with gradual scaling and supported alternative solutions like better metrics for member outcomes. They highlighted risks from overlapping reforms and urged sequencing changes to minimise costs and disruptions. The response also emphasised a need for evidence-based, member-focused policies.

The Association of Consulting Actuaries (ACA) said that whilst it supported the drive for scale and investment in productive assets, the proposals outlined in the consultation could have negative consequences for savers and employer support at a time when savings adequacy is a long-term societal challenge. 

The Pensions Management Institute (PMI) highlighted concerns about radical changes to the pensions landscape, such as consolidating schemes based on a very large size threshold. They argued that scale alone does not guarantee investment in UK productive assets and stressed that trustees must prioritise fiduciary duties to members. The PMI suggested starting with a smaller minimum AUM threshold and emphasised the need for innovation, clarity on regulations, and flexible approaches to avoid unintended consequences.  

Reforming LGPS investment – consultation closes 

The deadline to respond to the Government’s consultation on furthering the pooling of assets, local investment and strengthening governance in the Local Government Pension Scheme (see Pensions Bulletin 2024/45) has also now passed and from the responses available a theme is emerging of concerns being expressed on the pooling proposals, whilst support is being given on the governance aspects. 

For example, the PLSA expressed concern about administering authorities having to take their principal advice on investment strategy from the pool, with the pool potentially setting the funds’ strategic asset allocation, saying that the authorities should remain responsible for this aspect, given they remain accountable to members, with pools being responsible for implementing such strategy. The PLSA also thought that the March 2026 deadline for transition to the new funding model was unachievable. By contrast the PLSA welcomed the opportunity for administering authorities to set their own targets in relation to local investments, and the good governance recommendations. 

The ACA also had a number of concerns on the pooling aspects, including the shift of responsibility for setting the investment strategy, FCA authorisation of the pools and the March 2026 deadline. By contrast, it was supportive of the governance proposals.  

The Association of Professional Pension Trustees responded only on the governance aspects on which it was largely supportive. 

The SPP, in summarising its response, urged the Government to carefully reconsider both the nature and pace of some of its proposals, pointing out that whilst it was right for the Government to challenge the LGPS to assess its progress, the type and pace of changes being proposed ran the risk of derailing some of the good work of the last decade, as well as impinging on administering authorities’ fiduciary duties. Furthermore, within the LGPS the SPP said that it was not clear how these proposals would meet either of the Government’s objectives of improving pension outcomes for members or increasing investment in the UK.

Auto-enrolment parameters remain in the deep freeze 

Following statements made by Government ministers on 21 January 2025 (including by Torsten Bell – the new pensions minister), the analysis supporting the Government’s review of the earnings trigger and qualifying earnings band to be used for auto-enrolment purposes for 2025/26 was published. 

The earnings trigger above which individuals must be auto-enrolled will continue to remain frozen (as it has been since 2014/15) and the band of earnings on which minimum contributions are based will continue to be aligned to the Lower and Upper Earnings Limits for national insurance purposes. Therefore for 2025/26: 

• The automatic enrolment earnings trigger will be maintained at £10,000 pa 
• The lower limit of the qualifying earnings band will remain at £6,240 pa 
• The upper limit of the qualifying earnings band will remain at £50,270 pa 

The analysis states that freezing the earnings trigger will see private sector participation at 15.7 million in total. The equivalent figure this time last year was 15.8 million (see Pensions Bulletin 2024/05).