Pension Schemes Act 2026: what it means for pension savers

The Pension Schemes Act 2026 is now law.

It started life as the Pension Schemes Bill, which was first announced in the 2024 King’s Speech. Since receiving Royal Assent on 29th April 2026, it has become one of the most significant pieces of pensions legislation in recent years.

The Act is designed to improve outcomes for pension savers. In broad terms, it aims to make workplace pensions easier to manage, better value and more efficient.

Some of the changes will affect pension providers, trustees and employers more than they will affect individual savers. Other changes could make a practical difference for people with several small pension pots from previous jobs.

Here is what you need to know.

Why was the Pension Schemes Act introduced?

Auto-enrolment has brought millions more people into workplace pension saving.

That is a good thing. However, it has also created some practical problems.

Many people now change jobs several times during their working life. Each move can leave behind another small pension pot. Over time, someone may have pensions scattered across several providers.

This can make it harder to keep track of retirement savings. It can also increase costs for pension schemes, especially where they have to administer large numbers of very small pots.

There is also concern about value for money. Not all pension schemes perform equally well. Charges, investment performance, administration and governance can all affect the final pension pot that a saver receives.

The Pension Schemes Act is intended to address these issues and push the pensions market towards fewer, larger and better-run schemes.

Small pension pots may be brought together

One of the most practical changes concerns small pension pots.

The Act creates a framework for bringing together certain small, deferred defined contribution pension pots. These are the kinds of pots many people build up through workplace pensions when they move from one employer to another.

The aim is to stop people from losing track of small pensions and to reduce the cost of administering them.

This could be helpful if you have had several jobs and are not sure where all your old pensions are held.

However, it does not mean you should ignore old pensions for now. If you think you have lost track of a pension, it is still worth checking. Even a small pension pot can form part of your wider retirement planning.

Pension schemes will face value-for-money checks

The Act also introduces a new value-for-money framework for defined contribution pension schemes.

This is important because the cheapest pension scheme is not always the best one.

Charges matter, but so do the performance of investments, service standards and governance. A pension with low charges may still produce poor results if investment performance is weak. Equally, a scheme with slightly higher costs may be better value if it delivers stronger long-term outcomes.

The new framework is intended to make schemes show more clearly whether they are giving savers good value.

Over time, this should make it harder for poorly performing schemes to continue without improving or transferring members elsewhere.

Larger pension schemes are part of the plan

The government also wants to encourage larger pension schemes.

The idea is that bigger schemes may be able to operate more efficiently, reduce costs and access a wider range of investments.

This includes investment in areas such as infrastructure, private markets and other long-term assets. The government believes this could improve pension outcomes and support wider UK investment.

For savers, the important point is not the structure itself. What matters is whether any changes improve long-term returns after costs.

There is no guarantee that every saver will be better off. Pension outcomes still depend on contributions, investment performance, charges, retirement age and personal circumstances.

Schemes will need to help members turn pension pots into income

A defined contribution pension is relatively simple while you are saving. Money goes in, it is invested, and the pot hopefully grows.

The harder question comes at retirement: how should that pot be turned into income?

Since pension freedoms were introduced, many savers have had more choice over this. They may be able to take cash, buy an annuity, use drawdown, leave money invested, or use a mix of options. That flexibility can be valuable, but it also leaves people with difficult decisions at a point when mistakes can be costly.

The Act introduces what the government calls “guided retirement”.

In practice, this means relevant defined contribution pension schemes will need to offer one or more default pension benefit solutions for members approaching retirement. Members will still be able to choose a different route, but there should be a clearer starting point for people who do not want to build their own retirement income plan from scratch.

The aim is to move workplace pensions closer to being pensions again, rather than simply savings pots. Instead of leaving members with a pot of money and a long list of choices, schemes will need to provide a route that is designed to produce income in later life.

The exact options will depend on the scheme and on further rules. They may include different ways to provide regular income, manage investment risk and reduce the chance of someone running out of money too soon.

This will not replace regulated financial advice. However, it should give many savers more structure when they reach retirement.

What does the Act mean for defined benefit pensions?

The Act also makes changes to defined benefit pension schemes.

These are pensions that promise a set level of retirement income, which is usually based on salary, length of service and scheme rules. They are different from defined contribution pensions, where the final pot depends on contributions and investment performance.

The changes are mainly aimed at employers, trustees and members of defined benefit schemes.

One change is the creation of a permanent legal framework for defined benefit superfunds. A superfund is a consolidation vehicle. In some cases, it can take over responsibility for a defined benefit scheme from the original employer.

This may give some employers another way to secure pension promises where a full insurance buyout is not practical or affordable. The aim is to give some schemes another way to meet their pension promises, without putting members’ benefits at unnecessary risk.

The Act also changes the rules on pension scheme surpluses.

Many defined benefit schemes are now much better funded than they were in the past. In some cases, the scheme may have more assets than are expected to be needed to pay members’ promised benefits.

The Act gives trustees of well-funded schemes more flexibility to release surplus funds, subject to safeguards. This could allow surplus money to be shared with the sponsoring employer or used to improve member benefits.

However, this is not a free-for-all. Trustees will still need to protect members’ promised pensions. Further regulations will set out the conditions that must be met before surplus money can be released.

Does the Pension Schemes Act change the State Pension?

No. The Pension Schemes Act 2026 does not change the State Pension.

It does not set the State Pension age or change how much State Pension you receive. It also does not replace the need to think about your own retirement planning.

For many people, the State Pension will only form one part of retirement income. Workplace pensions, personal pensions, savings, investments and business interests may also matter.

Does this mean you should pay more into your pension?

Not automatically.

The Act is designed to improve parts of the pensions system, but it does not answer the personal question: are you saving enough?

That depends on your age, income, retirement plans, current pension savings, tax position and wider financial circumstances.

However, the Act is a useful prompt to review your pension position.

You may want to check how much you and your employer currently pay into your pension, and whether:

• Your employer offers matched contributions
• You have pension pots from previous jobs
• Your pension provider has your current address
• You are claiming all available pension tax relief
• Company pension contributions could be useful if you are a business owner or director

For company directors, pension contributions can sometimes be a tax-efficient way to extract value from a business. However, the details need care. Contribution limits, company profits, cash flow and personal tax position all matter.

What should pension savers do now?

Most savers do not need to take urgent action because of the Pension Schemes Act.

However, it is worth using the new law as a reason to review your pension arrangements.

First, check where your pensions are. If you have changed jobs several times, make sure you know where your old workplace pensions are held.

Second, check what is being paid in. Auto-enrolment minimum contributions may not be enough to provide the retirement income you want.

Third, think about the tax position. Pension contributions can be valuable for tax planning, but the right approach depends on your circumstances.

Need help with pension tax planning?

The Pension Schemes Act 2026 should improve parts of the pensions system over time. However, it does not replace personal planning.

Your pension decisions still need to fit your income, tax position, business structure and retirement plans.

If you would like help reviewing your pensions, speak to THP. We can help you look at the tax planning implications and, where needed, work alongside your financial adviser.