Scale in workplace pensions is good – but not at the expense of innovation

As we enter 2026, the pace of pensions action doesn’t let up. With the Lords’ Grand Committee about to begin scrutinising the detail of the Pension Schemes Bill, for me, this is where the pensions debate and technical scrutiny really starts.

The House of Lords often provides the most technically informed debate on pensions legislation, and the second reading of the bill before Christmas was no exception. We have many heavy hitters in the Lords with lots of pension experience who are on hand to scrutinise the government’s proposals.

There was broad support for the bill’s overall direction, but peers were quick to highlight areas of concern and ambiguity. Those interventions will rightly shape the focus of the Grand Committee, where the detail and the consequences of the government’s proposals will be thoroughly tested and probed.

The debate ranged widely. Predictably, there was a strong focus on investing in the UK and productive finance, the threat of mandation, the lack of detail in the bill, and how legislation would operate in practice.

Several peers also noted the absence of anything looking at pensions adequacy, a gap Baroness Drake and the revived Pensions Commission are likely to return to in time.

Scale is good….

I was struck by the references to the scale test and consolidation, and what the government’s proposals may mean for consolidation, competition, and innovation. Concerns were raised about the risk of creating a more concentrated, potentially oligopolistic market, with Baronesses Altmann and Penn among those warning against unintended consequences.

Scale in workplace pensions is manifestly a good thing. For too long, we’ve had an industry that has operated at subscale, with fragmented provision and questionable value for money in parts of the market.

I’m supportive of scale for the right reasons; it should deliver better value for money, better efficiency, better governance, and more buying power and expertise when it comes to investments that smaller schemes just can’t match. But am I the only one to think that the government has simply plucked the £10bn and £25bn hurdles out of the air?

One of the great policy success stories of the past 15 years when it comes to pensions has been the introduction of auto-enrolment. Getting more people to save more for their retirement, using inertia to help people save, along with mandatory employer contributions, has certainly moved the dial.

Many will argue that we still haven’t properly got to grips with the adequacy challenge, and I would agree, although we have got a strong platform on which we can build when the time is right.

… But let’s not forget competition and innovation

Let’s not forget the innovation that was kick-started due to auto-enrolment. Who would have thought that The People’s Pension would rise out of the construction industry and become a major workplace pension provider? Likewise, for Smart Pension, which tackled the small and medium enterprises market in 2015 with the effective use of technology, giving employers a genuine choice in workplace pensions.

There are others, too, that have moved the dial and that have contributed to what is now a highly competitive pensions market, pushing incumbents to improve. I’m not sure anyone would have seen this coming. Thinking back to 2010, ahead of auto-enrolment, most people thought that most businesses the insurers weren’t interested in would just go to Nest.

Innovation is important. It keeps incumbents on their toes. It keeps markets healthy. It allows new entrants to come into the market with new ideas, new solutions, and new ways of tackling problems to improve outcomes for pension savers. Just look at what the neo-banks have done when it comes to current accounts and personal savings, driving better service, lower costs and more user-focused products.

The somewhat arbitrary nature of the £10bn and £25bn scale tests fails to create the right conditions for new entrants and innovation. The government recognises that innovation is important through the clauses on allowing schemes to use a new entrant pathway to enter the market. But these provisions are flawed in two important respects.

First, the provisions take no account of schemes and providers who have relatively recently entered the market and that will have less time than others to achieve the necessary scale, despite often having invested heavily in technology governance and member experience. Second, it stifles new entrants from entering the market until 2030.

This is a long time to close the door on competition and innovation, especially when technology is evolving so rapidly. Both are cause for concern – we need regulation that encourages innovation, investment and growth, not regulation that stifles it (there’s too much of that already).

So, I’m looking forward to the Lords getting stuck into the detail of the Pension Schemes Bill. There is an opportunity to work through the detail of the bill and iron out some of the wrinkles.

Scale can and should deliver better outcomes, but only if it is pursued in a way that remains open to new ideas, new entrants and healthy competition. Proportionate regulation that supports growth and innovation will be essential if workplace pensions are to continue evolving in members’ best interests.

Darren Philp is a director at Untamed Consulting and a policy adviser to Penfold