Pensions reform: the FCA’s next steps

The pace and intensity of regulatory change in the FCA-regulated pensions space have perhaps never been greater. Alongside the Second Pensions Commission’s May 2026 Interim Report, the Pensions Schemes Act 2026 (PSA26) has received Royal Assent and the Financial Conduct Authority (FCA) has published its 2026 Regulatory Priorities for Pensions. 

In this article, we highlight recent regulatory developments in the sector and explore what’s coming up under four key themes:

• Scheme efficiency and value
• Support for pensions savers
• Pension investment and the drive for UK economic growth; and
• A future vision for pensions

These themes are not new. They reflect an iterative regulatory journey which started more than a decade ago with the introduction of pension freedoms in 2015. 

The long-standing shift away from defined benefit (DB) schemes towards DC schemes places the risks of pensions investment under-performance, higher charges and uncertain longevity squarely with pension savers. DC members often face challenging investment and retirement choices with limited understanding and low levels of engagement. The scale of DC accumulation pots, together with the extended time horizon associated with pensions, present opportunities to invest in illiquid, higher-return assets which, whilst potentially driving UK economic growth, could also expose pensions savers to unfamiliar risks. 

In this context, a Second Pensions Commission was convened last year to explore how a future UK pensions system could better support sustainable retirements. It estimates that pension saving by 15 million people is falling behind and warns that this number will only grow if action is not taken.

Efficiency and value

Given DC savers’ exposure to the performance of hard-earned pension pots, a key focus for the UK government and regulators continues to be optimising outcomes from DC contributions made.

Value-for-money framework

Historically, regulation on value-for-money (VFM) in pensions has focused heavily on cost reduction. When pension auto-enrolment (AE) was launched in 2015, an initial salvo was simply to limit annual charges on workplace DC default funds to 0.75%. This protected auto-enrolled savers who did not actively choose an investment strategy from unnecessary costs. Later in 2020, Independent Governance Committees (IGCs) were established to oversee outcomes for savers in contract-based workplace DC schemes, including through disclosure and benchmarking of costs and charges.

However, some now feel that, although progressive at the time, charges metrics contributed to schemes focusing unduly on cost rather than more holistically on net investment outcomes and wider performance. This is something which a new proposed VFM framework for DC pensions, set to launch in 2028, seeks to address.

This VFM framework will apply to both workplace DC schemes under FCA regulation and DC sections of trust-based schemes under The Pensions Regulator (TPR). It would require DC schemes to report and benchmark themselves across both backward and forward-looking metrics covering aspects such as charges, investment returns and service quality. Schemes would then need to address any under-performance.

Using powers under PSA26, the Department for Work and Pensions intends to consult on secondary legislation governing TPR firms, with the FCA also consulting on final rules at that time. The FCA’s most recent VFM consultation gives a helpful flavour of what to expect.

Consolidation of small dormant AE pots

AE has led to a proliferation of small DC pension pots as employees (particularly lower earners who frequently change jobs) disengage with prior workplace pension savings.

To tackle potentially poor outcomes from disproportionate administration costs, from 2030 onwards, using powers under the PSA26, the UK government is proposing to facilitate automatic consolidation of in-scope small pots into one of several central schemes. 

The consolidation scheme will cover pots of £1,000 or less where there has been no active fund selection or contribution for the past 12 months. The pot’s owner can opt out or choose a consolidator (or be allocated one if they don’t).

Value for DC savers in unit-linked funds

Value is also an important component of FCA strategy for regulation of non-workplace DC schemes.

Under the Consumer Duty’s price and value retail customer outcome, FCA-regulated DC pension providers should regularly assess the value offered by their products.  The FCA is currently conducting a review of what price and value means for DC pension savers investing in unit-linked funds offered by life insurers. The review will cover the full value chain, including costs of insurance wrappers, individual unit-linked investment charges and insurer/asset manager fund-related fees. The FCA review is due to report in the first half of 2026.

Support for pensions savers

Pensions freedoms introduced greater flexibility and choice for DC savers. However, many struggle to navigate an appropriate pension investment strategy or the best options for taking retirement income. Most savers cannot afford, or choose not, to take financial advice. In response, over the past decade, the FCA has instigated a range of measures to support decision-making and to protect the disengaged.

For the pension accumulation phase, default investment choices have been introduced for non-workplace DC schemes and exit charges capped to make it easier to transfer to more competitive schemes. ‘Targeted support’ is now being introduced to help bridge the pension advice gap. Most recently, the FCA has consulted on new rules to better support consumers using digital pension planning tools for in-force products or making decisions about transferring DC pensions pots without advice.

Pension dashboards

Pensions engagement has been a harder nut to crack. For many DC savers, pensions are opaque, daunting, something to worry about far down the line and, frankly, dull. Pension dashboards, it’s hoped, will go some way to change that. The long-awaited pensions dashboards programme will allow pensions savers to see all their pension savings in accumulation (State pension, DB and DC) securely online in a single place. This will allow them to assess whether their likely income in retirement will be sufficient and support them to make decisions about, for example, increasing savings, changing investments or consolidating fragmented pots. 

Access to data and marketing to dashboard users will be tightly controlled. The regulatory framework for pensions dashboards introduces a new FCA-regulated activity of operating a dashboard and places an obligation on pension providers to connect to the dashboard architecture by 31 October 2026.

Retirement choices and ‘Guided Retirement’

However, pension decumulation choices have perhaps become even more of a focus for the FCA. Often pension pots are fully accessed in cash or remain over-invested in cash assets during drawdown. 

Under FCA rules, consumers approaching retirement or looking to access DC pots receive wake-up packs, nudges to government-funded pensions guidance and appropriate retirement risk warnings. Firms are obliged to remind DC savers of open market options for decumulation and provide them with comparative quotes for annuity contracts. Savers choosing drawdown must now be offered pre-set investment pathways and are warned of the risks of investing too heavily in cash.

The new concept of ‘Guided retirement’ set out in PSA26 goes a step further in offering support for those reaching retirement and feeling overwhelmed by their options.

PSA26 will place a duty on trustees to consider and put forward default decumulation options to members who do not opt-out, either directly from their scheme or via guided transfer to another scheme. This extends the concept of a ‘default’ option (where the expertise of a scheme is used to design a suitable solution for members who do not self-select) from the accumulation to the decumulation space. A firm timetable for guided retirement is yet to be set, but staged implementation by scheme type is expected across late 2027 and early 2028.

The FCA plans to publish a Discussion Paper on Guided Retirement during 2026.

Pension investment and the drive for UK economic growth

Alongside moves to promote positive investment outcomes for pension savers, the UK government is keen to tap into opportunities to harness some of the £1.3trn of assets invested in DC pensions to boost UK economic growth. The emphasis is on creating scale, improving investment governance and broadening asset allocation. The belief is that larger, more sophisticated schemes can better diversify risks connected with higher-risk, longer-term investments and provide valuable financing for new infrastructure, energy and private equity investments (growth-focused assets).

The refreshed May 2025 Mansion House Accord saw the largest workplace DC pension providers commit to boosting investment in growth-focused assets to 10%, with 5% specifically earmarked for UK investment. The government’s “productive finance” agenda has also led to the launch of the Long-Term Asset Fund and corresponding adjustments to permitted links for insurance-based DC pension default funds.

New scale and asset allocation requirements for multi-employer AE schemes

PSA26 lays the foundation to further promote scale and growth-focused asset allocation in DC pension schemes by supporting so-called AE “megafunds”. 

Multi-employer schemes which are eligible to become AE megafunds should have at least £25 billion in their main default fund by 2030 (or otherwise have £10 billion by that date and a credible plan to reach £25 billion by 2035).

A further (and controversial) power is also granted to the UK government to withdraw approval for a scheme to qualify for AE if it does not meet minimum asset allocation targets for its default fund. The detail of the investments in which default funds must invest will be set out in subsequent secondary legislation.

Political opposition in the House of Lords has led to additional safeguards around the use of this power. The power will fall away from 2035 onwards. The target proportion of default fund investment mandated under the provisions should not exceed the voluntary pledges under the 2025 Mansion House Accord. Finally, there is a carve-out available where a scheme’s regulator regards as reasonable a conclusion by a scheme that the relevant asset allocation is not likely to be in the best interests of its members.

Review of the workplace pension default fund charge cap and performance fees

Perhaps relying on the guard-rails of the VFM framework, the FCA is also promising a review of the workplace pension default fund charge cap and performance fees in 2026. A previous government review in 2021 concluded that the charge cap remained at an appropriate level.

The FCA review will consider whether a relaxation of the 0.75% charge cap for default funds in workplace DC schemes can be justified to facilitate diversification into unlisted asset classes. Variation of the charge cap might allow greater default fund investment in private equity or project finance assets which often incur “performance-based” management fees considerably above the current cap.

However, with the FCA’s mandate to secure an appropriate degree of protection for consumers, DC schemes can expect any considerations focused on promoting UK economic growth through default fund investments to be appropriately balanced with the regulator’s view of any attendant risks to pension savers.

A future vision for pensions

So, as we wait for a fresh vision for UK pensions in the Second Pensions Commission’s final report in 2027, what is the FCA already doing to position pensions for the future?

Self-invested personal pensions (SIPPs)

Following input from the FCA’s December 2024 Discussion Paper, the FCA is now planning to consult on changes to the regulatory environment for SIPPs. 

SIPPs have the potential to make pension accumulation more accessible, digitally enabled and engaging, especially for those excluded from auto-enrolment. As the FCA describes, “originally designed for wealthier, more experienced investors, SIPPs have evolved into a more mass-market pension product, with technology enabling easier access”. 

However, elements of the SIPP sector have historically been haunted by pensions fraud and scams, inadequate due diligence by SIPP providers and scheme insolvencies which have put strain on the Financial Services Compensation Scheme. A re-set of regulatory requirements to more closely target those SIPPs where consumer harm is more likely may help to reduce costs, drive innovation and boost consumer confidence in SIPP savings.

Tackling legacy issues in pensions

The long lifespan of pension products means that savers are often locked into plans with outdated features or processes which do not meet their needs and which their providers struggle to update.

The FCA is now promising fresh discussions with the industry to tackle some of the barriers to transforming legacy DC pensions into modern, flexible and accessible products which deliver good outcomes. Potential targets for regulatory change include addressing the issue of ‘goneaways’ (or customers with whom firms have lost touch and whom they may be unable to trace), the cost and administrative burden of bulk policy transfers (under Part VII and Part VIII FSMA), simplifying the regulation of with-profits policies and better support for firms wishing to update complex legacy terms and conditions.

Collective Defined Contribution (CDC) retirement schemes

Lastly, in October 2025, the UK government launched a consultation into retirement CDC schemes. CDC could provide a new decumulation option for DC savers across the TPR and FCA-regulated worlds and may work well as a Guided Retirement solution. 

A CDC scheme allows retirees an opportunity to use part or all of their DC pot to purchase a pension within a collective fund. The fund would pay them a target, non-guaranteed trustee-managed income for life which would be annually reviewed based on investment returns and fund member longevity. CDC schemes could offer a balance between the security of an annuity and the flexibility of drawdown. It remains to be seen how the FCA might regulate the availability, suitability and ongoing management of CDC schemes within their perimeter.

Buckle up for more

There will be little respite from the juggernaut of regulatory change for FCA-regulated pensions this year – or, indeed, anytime soon.

Despite the undoubted benefit of more than a decade of incremental FCA regulatory developments, the Second Pensions Commission still notes that more work needs to be done to ensure that “the pension saving journey is smooth, the vast majority of savers are protected from risk, and the system remains fair and accessible up to and beyond retirement”.