DC outlook: Scale, value, and adequacy are top of the agenda

The requirement for DC master trusts to reach a minimum size of £25bn has already prompted acquisition activity in the sector, while wide-reaching value-for-money proposals also bring a range of new considerations for management teams.

Smaller, independent DC schemes also face challenges as they decide whether to continue alone or join a larger master trust.

Next year will also see the first report from the Pensions Commission as it seeks ways to address inequalities in the retirement savings system and make it ‘future-proof’.

Click the questions to jump ahead in the article.

• What is the biggest challenge facing the DC sector in 2026?
• What’s the biggest opportunity for the DC sector next year?
• Do you expect an increase in M&A as master trusts target £25bn in assets?
• How can own-trust and small DC schemes prepare for the Pension Schemes Bill?

What is the biggest challenge facing the DC sector in 2026?

Kirsty Ross, proposition director at People’s Partnership, provider of the People’s Pension: “The value for money consultation is going to be an interesting challenge for pension providers. While the hope is that it will make the market a lot more transparent, which is great news for savers, it won’t be easy.

“Our recent research shows that value for money metrics play a major role in shaping consumer decisions. However, the technical complexity of measuring and presenting them in a way that is meaningful to savers is no small task.

“This is a pivotal moment for the industry as, from a policy perspective, the government expects the value for money measures to reshape the market, while we anticipate much greater engagement from savers as pension pots grow – as we’ve seen in Australia.”

Kelly Parsons, head of DC proposition at Broadstone: “Retirement adequacy remains a major challenge. Insufficient savings continue to be the biggest barrier to good outcomes, and although auto-enrolment has helped, contribution levels are still too low. Many members wrongly assume that saving at the statutory minimum will be enough.

“Second, regulatory reform is creating further pressure. The value for money framework, the move towards megafunds, and the compliance burden that comes with these changes are all areas of concern.”

Maggie Rodger, co-chair of the Association of Member Nominated Trustees (AMNT): “Navigating the process of consolidation of smaller schemes to create scale, while maintaining value for money.”

Stuart Arnold, senior DC pensions consultant at WTW: “Exactly how the megafund requirements will look when finalised and the impact that will have on some providers remains a question, although there was further clarity as the bill has gone through parliament and the wording has refined. However, there will inevitably be some corporate activity in the provider space. Over the next year and beyond, a challenge for the industry will be ensuring that member experience and provider performance do not suffer.

“Pension providers – particularly master trusts – will need to focus their time on developing guided retirement (default decumulation) solutions as these are expected to be ready for 2027.

“Meanwhile, there is still work to be done by regulators on the details of the framework and guidance issued to trustees and sponsors on what to offer. This is a significant challenge for all aspects of the pension industry, with the need to design solutions, communicate these and support savers with their decisions.”

David James, deputy chair of the Society of Pension Professionals’ (SPP) DC committee: “To improve member outcomes. ‘Generation DC’ is going to be reliant on their DC pension savings for financial security and dignity in retirement. We welcome many of the changes in the pipeline to help create a pensions system which is fit for purpose.

“One of the key challenges (as always) will be to keep members at the heart of what the pension industry does. We have an exciting period of innovation ahead of us.”

What’s the biggest opportunity for the DC sector next year?

Maggie Rodger (AMNT): “The opportunity to plan to offer collective DC as a guided retirement option for DC savers who do not want to manage their own funds. However, it may take longer than 2026 to actually happen.”

David James (SPP): “There are huge opportunities to help members more at the stage when they access their DC pension savings. We need to help develop the right blend between simplicity and choice, support member understanding, and provide better off-the-peg solutions.

“The Pension Commission’s work to improve adequacy is also a generational opportunity. Encouraging increased inputs combined with maximising the outputs will be key.”

“Action is needed soon if the DC sector is going to have a meaningful impact on the outcomes for many savers. There’s an opportunity for the government to drive this forward.”

Stuart Arnold, WTW

Stuart Arnold (WTW): “Financial education is going to be key to financial wellbeing in the UK, and the DC pension sector can play a big part in this. As the Financial Conduct Authority progresses its Advice-Guidance Boundary Review and puts forward targeted support as a way for suggestions to be made to individuals, this gives a greater opportunity for the market to begin providing better, personalised support to individuals.

“I would also like to mention the Pensions Commission. The key goal here is to undertake a comprehensive assessment of the adequacy of retirement incomes for future generations. Action is needed soon if the DC sector is going to have a meaningful impact on the outcomes for many savers. There’s an opportunity for the government to drive this forward, and we hope it does!”

Kirsty Ross (People’s Partnership): “The biggest opportunity for the pension sector in 2026 is the Pensions Commission. It’s a once-in-a-generation chance to bring clarity, consensus and a shared vision to solving the savings challenges we face.

“This isn’t just asking people to pay more into their pensions, it’s about being clear on what we want to achieve and for whom.

“We need to think carefully about the right target levels and benchmarks for different people, rather than defaulting to higher contribution rates and lower thresholds. Getting this right could transform retirement outcomes for millions of UK savers and set the foundation for a future-proof pension system.”

Kelly Parsons (Broadstone): “The biggest opportunity lies in regulatory reform, working closely with providers and employers to plan and adapt to new requirements.

“A particularly hot topic is salary sacrifice, because the £2,000 cap on national insurance savings for both employers and employees means planning needs to start early so changes can be implemented ahead of 2029, when the new rules take effect.”

Do you expect an increase in M&A as master trusts target £25bn in assets?

Kevin Dolan, client director at Vidett: “The recently announced plans to double the number of £25bn-plus megafunds means that consolidation across providers, consultancies and trustee firms is likely to occur with an anticipated £1bn-a-year cost saving achieved as a consequence.

“The government considers the reform plans it has outlined will mean bigger, better pension schemes, delivering a better retirement for millions and a much higher level of investment in the UK.

“M&A activity is often prevalent in a mature market and can often assist in driving efficiency, and the anticipated scale involved should bring benefits for providers and scheme members.”

Kevin Dolan, Vidett

“M&A activity is often prevalent in a mature market and can often assist in driving efficiency, and the anticipated scale involved should bring benefits for providers and scheme members alike. There is therefore a strong possibility that M&A activity in a consolidated market will be seen to help achieve this.”

Kelly Parsons (Broadstone): “The £25bn megafund target, alongside the value for money framework, is accelerating consolidation. Smaller trusts will struggle to meet scale requirements and compete effectively, while larger schemes are likely to pursue acquisitions to achieve economies of scale, improve access to private markets and deliver better outcomes for members.”

David James (SPP) “The requirement for £25bn scale is an extraordinary intervention in the market. We are expecting this to lead to consolidation. The requirement for scale is likely to stimulate some mergers between pension arrangements, but it is early days, so it remains to be seen how this will pan out.”

How can own-trust and small DC schemes prepare for the Pension Schemes Bill?

Kelly Parsons (Broadstone): “Schemes need to strengthen governance and ensure they can demonstrate compliance with the new value for money framework, which focuses on evidencing good member outcomes rather than simply keeping charges low.

“If meeting the new standards looks challenging, schemes should consider options early to avoid rushed decision-making later.”

Kelly Parsons, Broadstone

“Trustees must implement default retirement income solutions for members who do not make an active choice, and ensure systems are ready for small-pot consolidation to authorised consolidators.

“Accurate data, updated member communications and readiness for pensions dashboards will all be essential. If meeting the new standards looks challenging, schemes should consider partnerships or consolidation options early to avoid rushed decision-making later.”

Stuart Arnold (WTW): “Take action as soon as possible. The Pension Schemes Bill brought guided retirement and value for money to the fore, both of which will require trustees to act and prepare their scheme. A fundamental first step is to understand the new requirements and time frames – if training hasn’t already been sought, now is the time.

“With the new requirements coming down the track, for some own trust/small DC schemes it will also raise the question again over whether they wish to continue to operate in this format or consider an alternative (e.g. master trust). Own-trust can certainly be beneficial to some employers and their members, but the question is worth testing again.”