How DC Pension Reform is Raising the Bar for Employers

The UK’s Defined Contribution (DC) pensions market is moving into a more demanding phase. After years in which DC has evolved to become the dominant form of workplace pension saving, regulators are now sharpening their focus on whether schemes are delivering genuine value for members.

That matters because, in DC, the risk sits largely with the saver. Contributions, investment performance, charges and the quality of governance all shape the retirement outcome an employee eventually receives. Small differences in cost or performance can compound over decades into very different levels of retirement income.

For employers and HR teams, this is not just a technical pensions issue. It goes to the heart of whether the workplace pension being offered to employees is fit for purpose.

A higher bar for DC value

The Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) are now consulting on the detailed design and implementation of a more standardised value-for-money framework for workplace pensions. The intention is to make it easier to compare schemes on a consistent basis and for poor value arrangements to be identified.

Under the proposals, schemes would be assessed against common measures covering investment performance, costs and charges, and service quality. They would also be benchmarked against a broader market comparator group, including commercial master trusts. Each default arrangement would receive a value rating, ranging from strong value through to not value, with underperforming schemes expected to take action. The latest proposals also incorporate forward-looking metrics designed to help improve comparability across the market.

The direction of travel is clear. With the Pension Schemes Act 2026 now providing the legislative framework for the new value-for-money regime, DC schemes will need to demonstrate, with evidence, that they are delivering for members; where they are not able to do this, improvement plans, or consolidation into a stronger arrangement, will become increasingly difficult to avoid.

Why employers should pay attention

Although the first assessments are still expected from 2028, employers should not assume this is a distant issue. Trust-based DC schemes already face value-for-members duties, and TPR has made clear that weak governance or superficial assessments will not be acceptable. In particular, smaller schemes already have to prove they have the scale, oversight and capability to deliver good outcomes.

That is why consolidation is becoming such a prominent theme in pensions policy. Larger schemes, particularly authorised master trusts, are often seen as better placed to deliver lower per-member costs, broader investment options, stronger governance and more resilient administration. And with greater resources available to them, investment in technology and innovative solutions to deliver better value is often stronger. This does not mean every smaller scheme is automatically poor value, but it does mean the evidential threshold is becoming higher.

For employers, the formal responsibility may sit with trustees or providers, but the reputational and employee experience implications are much wider. A workplace pension is a core part of the reward package. Employees may not scrutinise it closely today, but they will ultimately judge its value by the outcomes it helps them achieve.

Governance will be the deciding factor

HR teams and pension managers should therefore be asking more searching questions now. Can the scheme clearly evidence value for members? Are the trustees already meeting existing regulatory expectations? Is the scheme likely to compare well under the new framework? And, if not, is there a credible plan to improve it?

These questions are particularly important where governance structures have not kept pace with the growing complexity of DC pensions. Investment strategy, administration standards, member communications and regulatory reporting are all becoming more demanding. A scheme that may once have seemed adequate can quickly find itself exposed.

This is where professional trusteeship has an important role to play. As regulatory expectations rise, schemes increasingly need people around the table who understand not only the rules, but also how the wider market is evolving. Professional trustees can help boards interpret data, challenge advisers, assess performance and make more objective decisions about whether a scheme can continue to deliver value.

They can also bring discipline to difficult strategic conversations. For some schemes, the right answer may be to improve or restructure their governance and remain in place. For others, it may be to explore consolidation. Either way, employers benefit from having a clearer, better evidenced view of the scheme’s position before regulatory pressure intensifies.

A more transparent pensions market

The next phase of DC reform is about transparency, comparability and accountability. Regulators want savers to know whether their pension is working hard enough for them, and they want schemes that fall short to take meaningful action.

For employers and HR leaders, the message is not to simply wait for the final rules. The schemes best placed for reform will be those already testing whether they can demonstrate value, whether their governance is robust, and whether their current structure remains the right one for members.

DC pensions reform may be framed as a regulatory issue, but its impact will be felt directly in the workplace. Employers that engage early will be in a stronger position to protect employees, support trustees and ensure their pension provision remains a genuine part of a strong reward offer.

Interested in assessing whether your scheme is well positioned for the new value-for-money requirements? Speak to Priti Ruparelia, Head of DC at IGG, to explore the practical implications for your organisation.

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