Background

On 13 July 2026, the DWP published a discussion paper on key elements of the DC default arrangements scale policy.

In this response

General comments

We welcome the opportunity to respond to this consultation. We have provided some general comments and illustrative examples below.

  • Achieving the policy objective

Reducing fragmentation is a key aim of the scale agenda but our concern is that the proposals – as currently drafted – will not necessarily achieve a more efficient and effective UK pensions system.  While the proposals will likely result in asset consolidation at an umbrella arrangement level (so the requisite scale will be achieved), significant fragmentation will remain. For example, a provider may seek to combine the assets of its GPPs, master trusts and potentially bundled products into a single main scale default arrangement (“MSDA”) with a common investment strategy, but the creation of an MSDA in this way will not alleviate underlying differences in regulatory regimes, pension arrangements, governance structures and potentially even asset management. This could create tensions where, for example, trustee boards and providers disagree on how the MSDA should operate.

  • Timing

The contractual override is intended to be available from spring 2028, while the scale requirements (“the Requirements”) are due to come into force from April 2030. We agree that it is important for the override to be available alongside the new VFM framework and that, if these measures operate as intended, they should result in the consolidation of many default arrangements, thus streamlining the ultimate application of the Requirements. However, the industry still faces a lengthy period without the detail it needs to prepare for their implementation, and we would welcome the provision of additional guidance in the intervening period.

We would also encourage the DWP to consider opening applications for the transition and new entrant pathways now. Currently, applications for transition pathway relief are expected to open in 2029 and specific timing for the availability of new entrant pathway relief has yet to be announced.

If the transition pathway does not open until 2029, there is a real risk that many of the existing “sub-scale” providers will be adversely impacted because of their perceived inability to meet the Requirements. We urge the government to consider the wider implications, particularly since several of these providers are clear innovators and market-leaders in embracing tech and AI-driven solutions, progressive investment strategies and new benefit design/structures (eg CDC). We appreciate TPR has tried to reassure stakeholders that sufficient growth is achievable by many providers by the current deadlines but, in our experience, certain master trusts are not making it on to short lists for transfers from single employer trusts due to their size. This is creating an uneven playing field that could impact market innovation and competition.

We note also that, in making regulations on the Requirements, the DWP must have regard to the importance of innovation in the design and operation of pension schemes; competition among providers of pension schemes; improving outcomes for members of pension schemes; and pension schemes having effective governance. We are concerned the timing of the scale pathways may impinge on these regulating-making requirements.

Similarly, there are issues with the new entrant pathway. As a scheme must have “no existing members” to qualify for new entrant pathway relief, providers looking to enter the market now may be discouraged from doing so because of these restrictions. This will result in potential new schemes losing out on several years of growth while they wait for the pathway to open and, again, this is likely to impact market innovation and competition.

The “no new entrants” condition may also impact the nascent CDC market. CDC needs scale to be viable, and this could be achieved by providers introducing a new CDC section for members to transfer to, following a “nursery stage” of pure DC provision. We understand several schemes are considering such arrangements. Again, they will be discouraged from acting now if they will need to access the new entrant pathway to continue after 2030.

  • Scope and connections

The Pension Schemes Act 2026 will allow schemes to share an MSDA where they use a “common investment strategy” (“CIS”) and meet the standard of ‘connection’ that will be set out in regulations. We note the intention is for schemes to be connected where they sit in the same corporate group.

We appreciate the difficulty of designing the parameters for connection but would note that the current proposal to limit connection to schemes within the same corporate group will result in significant asset holdings being excluded.   We are also not clear how the test for “common control” in reg 29(5) of the Master Trust Regs 2018 would be applied to GPPs.

Certain arrangements with a CIS will not be in scope of an MSDA because their providers will not be “connected”. Given the variety of arrangements and partnerships within the market, the following anomalies could arise:

  • A CDC scheme, or a CDC section of a scheme cannot be a “master trust” or form a section of a “master trust” for the purposes of the Pension Schemes Act 2017 (sections 1(1)(e) and 1(1A)) and, as such, cannot be included within an MSDA. This means that assets used for CDC provision could not be counted towards a provider’s MSDA even if these assets are invested with, and meet the conditions for, a common investment strategy in conjunction with DC assets.
  • As currently drafted in section 28A of the Pensions Act 2008, two master trusts in a group with the same scheme funder or strategist could be connected but a master trust and a CDC scheme in the same group could not because a CDC scheme cannot be a relevant master trust.
  • Furthermore, as currently drafted, it would not be possible for a GPP or a master trust to include a retirement CDC section used as their default pension benefit solution (“DPBS”) within an MSDA. We understand the intention is that a member must consent to being allocated to a DPBS and, to be included with an MSDA, an arrangement cannot include a member who has chosen to be invested in it (under the proposed definition of an MSDA in section 28A(13) of the Pensions Act 2008). This could ultimately constrain innovation in the decumulation space, creating a tension between the scale and guided retirement and retirement CDC policies.
  • Some GPP providers offer a master trust solution through a white-labelled section of an existing master trust operated by another provider. In substance, the GPP provider offers both arrangements to its clients and applies the same investment strategy to each. However, the GPP could not include the white-labelled master trust section in its MSDA because it would not be a connected scheme. Conversely, the master trust might be able to include that white-labelled section in its own MSDA if there were a CIS. However, if the white-labelled section used a different investment strategy, it could not be included in either MSDA. As a result, the section could be excluded both from the MSDA of the master trust in which it sits and from the MSDA of the provider that promotes and markets it to clients.

We are also concerned that the CIS requirement might be unduly restrictive. The proposals do not accommodate the structure of many schemes’ investments. While they are intended to allow for lifestyling, many providers offer a default with a single early accumulation strategy which diverges when members move into their specific decumulation glide path (eg targeting annuity, drawdown or cash). Similarly, many bespoke or “alternate” defaults within master trusts will share the building blocks of the MSDA, as could a single employer trust using an off the shelf default through a bundled service provider. This all means that significant asset holdings will not count towards the Requirements.

We understand the need for the connection and CIS requirements to be suitably narrow to achieve the policy intentions of reducing fragmentation, building scale and improving outcomes but, the proposals need to be flexible enough to work alongside other areas of DC reform. Examples from the DWP of how they envisage their proposals operating would be useful.

  • Impact on secondary market transfers

Finally, we are aware that several GPPs and master trusts have large employers which are linked to several £billion of assets. If an employer decides to move pension arrangement, there is a risk the Requirements would affect a ceding master trust’s ability and willingness to agree to transfers out of their scheme. For example, there may be situations where the transfer would bring the GPP or master trust under the scale requirements and as a result, the transfer would not be in the interests of the generality of members (ie those remaining in the scheme).