UK pensions regulation could become “unfit for purpose” within a decade, report warns

The UK’s pensions governance and regulatory framework risks becoming “unfit for purpose” within the next decade as the workplace defined contribution (DC) pensions market consolidates, according to a new paper published by the Social Market Foundation.

The report, authored by pensions expert Michael Johnson, argued that reforms proposed in the Pension Schemes Bill 2025 could lead to significant consolidation in the sector, leaving as few as 10 large “megatrust” providers by the mid-2030s.

Johnson warned that funds of this scale will become systemically important financial institutions, requiring stronger oversight and governance standards than currently exist.

The paper set out proposals for making The Pensions Regulator the single regulator of all workplace DC pensions and phasing out contract-based workplace pension schemes by making them ineligible for auto-enrolment contributions from 2030.

The report also called for higher standards for pension trustees, including a national accreditation framework with defined conduct standards and technical competencies as schemes grow in size and complexity.

Johnson said: “The Pensions Schemes Bill 2025 is welcomed. It is ambitious and far-reaching, intent upon reconfiguring the workplace DC pensions market to increase retirement incomes for millions of scheme members.

“It is hoped that implementation of my paper’s proposals, to enhance the allied governance and regulatory frameworks, will play a part in achieving this, while also providing a steer towards what consumers really want: a single DC pension pot holding both personal and workplace-derived contributions. Simplicity to the fore.”

The paper also outlined recommendations on value-for-money assessments, retirement income defaults, surplus extraction from defined benefit schemes, and reforms to the Local Government Pension Scheme.

Theo Bertram, director at the Social Market Foundation, said: “This is an important provocation for government. Savers do not care whether their pension is ‘contract’ or ‘trust’ based — they care about security, value and retirement income.

“Michael’s argument is that the regulatory system should be reshaped to achieve those goals.

“Meanwhile, workplace pension megafunds are about to become some of the most powerful financial institutions in Britain, and Michael makes a clear case that if we end up with a small set of pension giants, then they must be regulated as giants.”