The Pension Schemes Act 2026 has the potential to improve outcomes for defined contribution (DC) pension savers, but there are concerns that some of its reforms could encourage schemes to adopt increasingly similar investment strategies, according to XPS Group.

In a briefing on the implications of the new legislation, XPS said the act's scale requirements, Value for Money (VFM) Framework and new decumulation provisions provide greater clarity on the future direction of the UK pensions market, although significant details remain to be finalised through secondary legislation and consultation.

Under the legislation, most multi-employer commercial pension providers will be required to have at least £25bn in a qualifying default investment arrangement by 2030, or £10bn with a credible plan to reach £25bn by 2035.

The government has also secured reserve powers to direct providers to invest up to 10 per cent of their main default funds in qualifying assets, including up to 5 per cent in UK investments.

XPS said these measures could support stronger investment returns, but stressed that success would depend on the quality of the available investment opportunities and governance arrangements overseeing them.

The consultancy also raised concerns about the forthcoming VFM framework, which is expected to apply to almost all workplace DC schemes and will require them to benchmark performance against comparator schemes.

According to XPS, the framework's emphasis on investment performance and risk could lead schemes to be reluctant to pursue differentiated strategies, as poor assessments could ultimately result in closure or consolidation.

"Why take the risk of standing apart?" XPS stated, warning that schemes could increasingly focus on avoiding underperformance rather than delivering differentiated outcomes for members.

The firm also welcomed the introduction of default retirement solutions, which will be required for master trusts from 2027 and other workplace DC schemes from 2028.

However, it argued that while innovations such as retirement CDC and 'flex and fix' approaches could improve member outcomes, no single default solution is likely to meet the needs of all savers.

XPS partner, DC consulting, Christopher Barnes, and head of DC investment, Mark Searle, said the act marks an important milestone but suggested that the pensions industry remains at the beginning of a much longer reform journey.

The briefing also highlighted other key measures in the act, including the introduction of automatic consolidation for dormant small pots worth £1,000 or less from as early as 2030, alongside the government's planned VFM assessments from 2028.

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