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DWP and FCA Open the Value-for-Money Rulebook That Will Decide Which DC Schemes Survive

Britain’s plan to force its defined-contribution pension market into a smaller number of larger schemes stopped being an ambition and became a rulebook on 13 July, when the Department for Work and Pensions and the Financial Conduct Authority opened a joint consultation on the Value for Money framework for workplace pensions. The consultation, carried in the FCA’s paper CP26/25 and a parallel DWP paper on GOV.UK, closes at 11.59pm on 1 September. It is the moment the Pension Schemes Act 2026, which received Royal Assent on 29 April, turns from statute into the detailed tests that will decide which schemes keep operating and which are consolidated out.

For savers the government prefers to talk about better returns. For providers, trustees and independent governance committees, this is a market-structure event, and the supervisory question is blunt: who survives the two gates the framework builds, and who is written out of the default market.

The scale gate

The first gate is size. The Act creates multi-employer DC “megafunds” of at least GBP 25bn, on the reasoning that scale drives down costs and lets schemes hold a wider range of assets, including UK infrastructure and private markets. The number is not a target. It is a condition of entry. To keep operating in the active enrolment market, a provider’s Main Scale Default Arrangement will need to hold at least GBP 25bn in assets under management, with sufficient investment capability, by 2030. There is one relief valve: a default holding at least GBP 10bn by 2030 can enter a transition pathway, provided it has a credible plan to reach GBP 25bn by 2035.

That single threshold reshapes the provider map. Master trusts and group personal pension books that have spent a decade competing on price and distribution now compete on whether they can assemble GBP 25bn of default assets inside four years. Sub-scale schemes have three options, and only three: grow into the bar, merge into someone who has, or hand their members to a scheme that clears it. The government’s own analysis expects the count of default arrangements to fall as the Act beds in. Consolidation is not a risk of the regime. It is the design.

The value-for-money gate

The second gate is performance, and this is where the July consultation does its work. The framework requires every in-scope default arrangement to be assessed and publicly rated on value for money, using a red, amber and green scale, with green itself split into dark green for strong performance and light green for good value, amber for arrangements that need to improve, and red for poor value. The rating is not a disclosure exercise that ends at publication. Where an arrangement is assessed as not delivering value, red or amber, firms are required to take specified action, and a scheme that consistently fails the test must either improve or protect its members by transferring them to a better scheme.

For trust-based schemes the consultation pairs that duty with enforcement. It sets out the intention for The Pensions Regulator to gain new powers to require consolidation and to wind up a scheme where it is persistently not offering value and where moving members is in their best interests. On the contract-based side, where the FCA rather than TPR is the supervisor, the framework loads the equivalent obligation onto providers and their independent governance committees, so that a poorly rated group personal pension faces the same push towards transfer. The phrase the government has used, that savers will see whether their scheme is top of the league or in the relegation zone, is a fair description of the mechanism. Amber is a warning. Sustained red is a closure notice in slow motion.

Two gates that point the same way

The scale bar and the value test are separate obligations, but they push in one direction. A provider can be large and still rated amber; it can be well run and still short of GBP 25bn. Both routes end at consolidation. That is why the supervisory read matters more than the saver headline. The framework does not merely encourage bigger, better schemes. It removes the ground beneath schemes that are neither, and it gives DWP, the FCA and TPR the machinery to move members out of them.

The burden that lands on trustees and IGCs is data and governance. A red or amber rating is only as defensible as the metrics behind it, and the framework standardises those metrics, on investment performance net of costs, on costs and charges, and on service quality, precisely so that ratings can be compared across trust-based and contract-based pensions on a common basis. Producing that data to a consistent standard, and being able to justify a rating to a regulator that can now act on it, is the unglamorous compliance work the consultation commits the industry to. Governance committees that treated value-for-money assessments as an annual formality will find the assessment is now the trigger for intervention.

The clock

The timetable makes the direction of travel concrete. The consultation closes on 1 September. The FCA intends to introduce final rules and guidance in 2027. The first value-for-money assessments are expected from 2028, starting with the largest schemes, including master trusts, large single-employer schemes and multi-employer contract-based schemes open to new employers, before extending to all in-scope arrangements from 2029. The GBP 25bn scale bar bites separately in 2030, with the transition pathway running to 2035.

Read together, those dates describe a market being narrowed on a fixed schedule. A provider sitting in the middle of the pack today, neither clearly at scale nor confidently rated green, has until roughly the end of the decade to become one thing or the other. The value-for-money rulebook that opened this month is the instrument that will decide which of them is still writing default business when the consolidation is done.

Sources

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