The Pensions Schemes Bill has completed its journey through Parliament following a compromise being reached around controversial mandation powers.
The Bill is now set to receive Royal Assent, following which it will become law.
It had been rattling back and forwards between the House of Commons and the House of Lords who disagreed on he wording around a mandate which could have allowed ministers to force pension funds to invest in risky assets, according to critics.
The House of Lord rejected the Bill twice, despite Government attempts to water down the Bill in order to get it to pass in the current sitting.
In order to get the Bill to pass, the Government limited its mandate to direct investment, capping it to specific percentages of assets (10% of assets in default funds, with a further 5% applying specifically to UK investments) rather than an unlimited mandate.
The mandate power is now set to expire in 2032.
The mandate was originally added as Chancellor Rachel Reeves wants pension schemes to invest part of their funds into UK companies to boost investment in UK business growth.
The final version of the Bill, passed for Royal Assent, includes investment trusts. These were previously excluded from the Bill, leading to criticism from investment commentators.
Claire Dwyer, head of investment companies at Fidelity International, was pleased to see them included.
She said: “Investment trusts have long played a critical role in channelling capital into long-term opportunities underpinning innovation and economic growth. Giving pension schemes greater scope to invest through the structure should enhance choice, support member outcomes and add further breadth to the UK’s capital markets.”
The Bill allows vital reforms that stand to reduce the cost of administering pensions, remove complexity for savers and help ensure schemes are maximising the value they provide.
A series of consultations will now be carried out by The Pensions Regulator (TPR) and the FCA to set out the details behind the headline rules.
A consultation on Value for Money will focus on etailed metrics, benchmarking and comparator data, alongside potential intervention thresholds that could enable regulator-led consolidation or scheme closure. It will also cover enhanced disclosure requirements and alignment between TPR and the FCA.
A separate consultation on DC decumulation and default pension benefit solutions will define what constitutes a default at retirement. This includes income objectives, longevity risk considerations, trustee duties for non-engaged members, and how default pathways interact with drawdown and annuity products.
A DC consolidation and ‘mega-fund’ requirements consultation will set out the framework for schemes targeting £25bn scale, with key discussion on the transition pathways for sub-scale scheme and further consideration exemptions, governance standards and safeguards for without-consent transfers.
Alongside this, small pots consolidation will need to examine automated consolidation mechanics, default receiving schemes, opt-outs, and integration with pensions dashboards and data frameworks.
David Brooks, head of policy at Broadstone, said: “With the Pension Schemes Bill nearing Royal Assent, attention now turns to a significant programme of detailed consultations that will determine how these reforms operate in practice across DC and DB.
“The next phase of consultations will need to keep a clear focus on how these reforms improve member outcomes in practice. Consideration of UK productive finance should form part of that assessment, but always through the lens of member value, security and retirement outcomes.”