The Pensions Regulator (TPR) has urged trustees of smaller defined contribution (DC) schemes to take a “clear-eyed view" of their future, as market consolidation accelerates and regulatory expectations continue to rise.

In a blog, TPR warned that trustees must carefully assess whether they can continue to meet increasing governance and operational demands, or whether members would be better served through consolidation or wind up.

TPR director of defined contribution and master trust supervision, Kim Goodall-Brown, stressed that trustees should prioritise member outcomes when considering their next steps, acknowledging that stepping back from running a scheme is not always straightforward.

However, she urged schemes to take an objective view of their ability to meet future requirements, particularly in light of the forthcoming Pension Schemes Bill.

The regulator also highlighted data from its 2025 DC landscape analysis, which showed that consolidation was continuing at pace across the sector.

The number of non-micro DC and hybrid schemes fell by 15 per cent over the past year, declining from 920 in 2024 to 790 in 2025, following an equivalent 15 per cent drop the previous year.

These reductions were concentrated almost entirely among schemes with fewer than 5,000 members, reflecting a shift towards fewer, larger schemes.

While larger single-employer schemes can still compete with master trusts, offering tailored member engagement and bespoke arrangements, TPR warned that this was becoming increasingly difficult for smaller schemes.

Looking ahead, the regulator pointed to the Pension Schemes Bill, which is expected to introduce a range of new legal duties for DC schemes.

These include requirements to implement default guided retirement solutions to better support members entering decumulation, as well as a new Value For Money (VFM) framework.

Under the proposed VFM framework, trustees will be required to collect and publish prescribed data, assess performance and benchmark outcomes against other schemes, with data collection expected to begin in 2027.

In addition, schemes will need to facilitate the automatic transfer of deferred small pots of £1,000 or less where no contributions have been received for at least 12 months.

TPR warned that these reforms would significantly increase governance and administrative demands, particularly for smaller schemes with more limited resources.

Goodall-Brown cautioned that running a smaller DC scheme was becoming more complex and resource-intensive, and trustees should now consider whether their scheme could continue to meet these heightened expectations.

For many schemes, the regulator suggested that consolidation into a larger arrangement, such as a master trust, may offer better long-term value, taking into account compliance costs, administrative burden and the risks associated with potential breaches.

Alternatively, TPR noted that winding up may be a more appropriate option in some cases, particularly where ongoing governance requirements were no longer sustainable.

The regulator also encouraged schemes to focus on improving data quality, reviewing governance capacity and actively exploring their strategic options ahead of the new requirements coming into force.

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