The Pension Schemes Act 2026 requires DC multi-employer schemes to hold at least £25 billion in a main scale default arrangement by 2030 to remain qualifying for auto-enrolment, with a transition pathway to 2035 for schemes that hold at least £10 billion by 2030 and a credible plan to reach scale.
Supporters say scale raises returns, and detractors say it stifles competition and doesn’t raise returns. But the two sides are largely arguing about different things. Scale does some things reliably, and others only on conditions. It helps to separate them.
The argument that being a larger fund, on its own, produces better investment returns is not well supported. UK evidence linking scheme size to gross returns is weak, and a DWP report found no correlation between fund size and performance for either master trusts or group personal pensions (both reported in TPR, DC consolidation and economies of scale: emerging evidence, May 2026). In 2024/25 median performance was higher in single employer trusts than in larger multi-employer schemes.
The case for consolidation runs along three lines, and only one of them depends on returns from size.
The first is cost. Larger schemes negotiate lower fees, both on administration and on investment management, where greater assets mean better terms from asset managers and the option of running some investment in-house. They also run more efficiently: a median earner could hold around £3,000 more in their pot from moving into a larger master trust. The Australian Productivity Commission found larger scale was associated with lower expenses, and TPR’s analysis shows cost per member falling as size rises. Lower charges feed straight through to what a member keeps, whatever the fund invests in.
The second is governance. Large schemes show strong governance and value for money processes, while small schemes lag on cyber security, trustee knowledge, and compliance (TPR, 2025). Larger funds also support in-house investment teams and operational resilience.
The third line is private market access. The argument is that large funds will put more money into private assets, which have historically paid better than public shares, and that members gain. Industry modelling projects significant benefits on this basis. However, these figures typically come from changing how much a fund holds in private assets, and the uplift flows from that shift. What the modelling shows is that a higher private market allocation could raise returns, not that being large in itself raises returns. Scale does play a part here, through the lower investment costs noted above. But cheaper access is a necessary condition, not a sufficient one: the fund still has to choose to make the allocation, and the assets still have to perform.
The competition concern is the other half of the picture. The UK is already more consolidated at provider level than many other countries, and those against the policy argue that the scale test risks an oligopoly. They point out that smaller master trusts have led the way on private market investment. There is also a risk on the demand side: the employers and advisers who select schemes do not always exert strong competitive pressure on providers, and with fewer and larger providers that pressure weakens further. A working secondary market, one that lets employers move between schemes readily, helps to keep providers competing on value rather than coasting on incumbency.
The threshold is now set in law, so the question is no longer whether to consolidate but whether the conditions around it deliver. Size alone does not reliably raise returns. The higher returns that scale does deliver come mainly from lower costs, and that effect is real but modest. Larger gains depend on a shift into private markets that scale enables, but does not guarantee, and that shift relies on what is still being written: how VFM is scored and enforced, charge cap and permitted links reform, a functioning secondary market, and a supply of assets to invest in. Whether the benefit beyond cost and governance justifies the concentration risk will be decided in the secondary legislation, not the Act.
Leave a Reply