While welcoming the government’s ambition to harness scale for Defined Contribution (DC) pension schemes, the representative body highlighted critical areas requiring urgent regulatory clarity and greater flexibility, particularly regarding the definition of Common Investment Strategies (CIS) and the measurement of scheme scale.
Key Highlights of the SPP’s Response:
Urgent need for interim guidance
The DWP's proposal to wait until late 2027 for draft regulations creates a prolonged period of uncertainty. The SPP urges the government to issue interim guidance on policy direction, exemptions, and transitional arrangements to prevent providers from pausing vital strategic investments.
Expanding eligible assets in the Main Scheme Default Arrangement (MSDA)
The SPP supports Assets Under Management (AUM) as the core scale metric, provided clear operational guidelines exist for valuations, illiquids, and market volatility. Crucially, the SPP calls for bespoke default arrangements and self-select options using common building blocks to be included in MSDA calculations, ensuring employer engagement is not penalised and scheme scale is not understated.
Flexibility beyond age-based criteria
The SPP strongly cautions against restricting Common Investment Strategy (CIS) variations strictly to chronological age. Restricting CIS flexibility threatens target-date funds, limits decumulation and guided retirement pathways (under the Pension Schemes Act 2026), and jeopardises the viability of Sharia-compliant and ESG-focused default options.
Replacing restrictive ‘Common Control’ tests
The SPP argues that relying on existing Regulation 29(5) tests excludes contract-based Group Personal Pensions (GPPs) and multi-trust provider structures. The SPP recommends replacing this with a Corporate Group Test paired with investment strategy alignment to capture true economic purchasing power.
Addressing joint governance conflicts
Managing a joint CIS across connected schemes or separate trustee boards introduces natural governance friction. The SPP emphasises that clear regulatory framework rules are required to prevent conflicting strategic preferences between trustee boards.
Chris Austin, Chair of the SPP Investment Committee, commented: "While the SPP understands the government’s goal of leveraging scale to deliver better outcomes for pension savers, clarity and speed are paramount. Waiting until late 2027 for draft regulations leaves the industry in limbo, threatening to stall vital investment and stifle innovation at a time when providers should be preparing for 2030.
Furthermore, scale cannot be a one-size-fits-all exercise. An overly rigid, age-only definition of investment strategies risks penalising engaged employers, undermining guided retirement pathways, and cutting off essential choices like Sharia-compliant or ESG-focused funds. Government must introduce sensible flexibility and early guidance so that the industry can execute these changes effectively."
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