Major pension changes for employers are reshaping how UK employees build their retirement futures. The Pension Schemes Bill, introduced in June 2025 and expected to become law in 2026, represents the most significant overhaul to workplace pensions in decades—tightening funding, governance and sustainability rules while strengthening protections for employee savings.
For HR and benefits leaders, these pension changes for employers go beyond compliance. This is an opportunity to align pensions with your people strategy, communicate clearly with employees, and adapt your benefits offering to support evolving needs.
In this guide:
What are the key pension changes for employers in 2025?
The reforms affect both Defined Benefit and Defined Contribution schemes, with new rules around funding, consolidation, and governance.
Defined Benefit (DB) schemes: More accountability, more opportunity
- Stronger funding rules require trustees and employers to set long-term plans with stricter targets and closer scrutiny of business decisions.
- Surplus sharing is now permitted, giving well-funded schemes the option to return surplus assets to members and employers with appropriate safeguards.
- Superfunds offer a route for smaller DB schemes to transfer to consolidated, regulated arrangements.
Defined Contribution (DC) schemes: Bigger, better governed, and more consolidated
- Megafunds for default options: By 2030, default DC funds must hold at least £25 billion in assets to remain eligible for auto-enrolment.
- Value-for-money assessments will determine whether schemes deliver on performance, cost, and service—failing schemes may be forced to wind up.
- Automatic small pot consolidation kicks in for dormant DC pots under £1,000.
- Default retirement options or decumulation strategies must be provided by trustees to support members who don't actively choose how to access their pension.
Enhanced governance and ESG transparency
- Large schemes must produce climate and ESG disclosures, with encouragement towards UK-focused investments.
- Trustees face tougher governance and reporting standards to ensure better protection for members.
How should HR teams prepare for these pension changes?
Understand what's coming
Engage your pensions provider and legal advisors to clarify how the new rules apply to your specific arrangements and how your scheme intends to comply.
Partner more closely with trustees
The emphasis on governance means HR must be involved in key business decisions early, including anything that could materially affect the scheme such as restructures or M&A activity.
Reassess DB funding strategy
If your DB scheme is in surplus, now may be the time to explore options with finance and trustees. The new surplus-sharing provisions open doors to reinvestment or redistribution.
Strengthen employee communications
Even well-intentioned reforms can cause concern. Equip your teams to explain the changes simply and positively, emphasising the protections being added for members.
Evaluate your total reward approach
The rising cost and complexity of DB schemes may prompt a shift toward more flexible, digital DC arrangements. Ensure your pensions offering supports your broader talent and wellbeing goals.
Connect pensions to your ESG strategy
Employees increasingly expect employers to take a stand on sustainability, and pension investments can be a powerful part of that story. Show how your scheme's ESG credentials align with your values.
What does automatic pension consolidation mean for employers?
Automatic small pot consolidation applies to dormant DC pots under £1,000. When an employee leaves and doesn't transfer their pension, these small pots will automatically consolidate into their new employer's scheme or a designated consolidator. This reduces administrative burden and helps employees avoid losing track of multiple small pensions throughout their career.
Will these changes affect our pension costs?
The impact on costs varies depending on your scheme type. DB schemes with stronger funding requirements may see increased contributions in the short term, though surplus-sharing provisions could offer relief for well-funded schemes. For DC schemes, the consolidation into larger funds could potentially reduce costs through economies of scale, though providers must demonstrate value for money through formal assessments.
The opportunity: Build trust while modernising benefits
These reforms represent more than a policy update. They're a chance to strengthen your employee value proposition. By engaging early and using the legislation as a catalyst for clarity, transparency and flexibility, HR leaders can build confidence and help employees feel more secure about their long-term financial futures.
How FlexGenius helps employers stay flexible and compliant
Adapting to pension reform doesn't mean adding complexity. FlexGenius empowers employers to offer flexible salary sacrifice contributions that employees can adjust anytime, with instant tax relief at marginal rates.
Our platform's pension modules include configurable matching and contribution capping tools, making it easier to stay within annual and lifetime allowances while giving your people more control over how they save.
With FlexGenius, you can embed pensions into a seamless, personalised benefits experience that adapts to your workforce, your compliance needs, and your budget.
Empower your employees with financial security. For more information or to see how FlexGenius can help you build a thriving culture, book a demo today.
For further information, please email enquiries@avantus.co.uk or call 0800 652 4745.
This article reflects the Pension Schemes Bill as introduced in June 2025 and may evolve as it progresses through Parliament.
