At a glance:

• The UK's Defined Contribution (DC) pensions sector is undergoing a period of significant transformation. The Government, supported by the FCA and TPR, is driving reforms to increase DC pension consolidation, improve customer outcomes and increase investment in productive assets.
• We believe the proposed changes will lead to:
  
  
  • sectoral consolidation with fewer, larger players dominating the market by 2030; to comply with the new £25bn size thresholds for multi-employer DC schemes.
  • better customer engagement and outcomes thanks to a richer offering of information, support, and advice; and 
  • strong incentives for DC providers to mobilise their capabilities to seek higher investment returns, and better value for money ("VfM").

• Life insurers should start acting now to adapt to these significant changes and secure their place in the future DC market. Pre-applications for the FCA Targeted Support regime open in less than three months, and a range of regulatory developments on DC pensions is expected each year until 2030. 
• In this transition period, medium-sized DC providers (£5-15bn DC AuM) will have to choose between undertaking heavy strategic and operational work over the next five to ten years to consolidate their workplace DC market share, or prepare for their exit. This will involve assessing their current market position and ability to continue growing, reviewing and identifying capability gaps to set a clear DC strategy, and considering major acquisitions. 
• To ensure commercial growth and success, insurers will also need to develop a robust proposition strategy focused on effective customer engagement. To do so, they should assess how to make the most of the new FCA support and advice landscape to build their Targeted Support, simplified advice or Guided Retirement offerings. DC providers’ mastery of technology (AI) and advanced data management to drive efficiency gains and improve customer outcomes will also be a key competitive differentiator.
• Working out what it takes to succeed in this new landscape will likely be an iterative process. Insurers will need to factor in competitors’ strategies, including actions from investment managers and retail banks. This is a moment of great jeopardy but also opportunity for insurers operating in the DC sector. Failing to act in time could lead to market exit in less than a decade. Taking the right steps now should enable insurers to create a pathway to success in the DC sector of the future.

Introduction

The UK's DC workplace pensions market, projected to hold around £800 billion in assets by 2030, is being transformed while facing a critical challenge: ensuring positive retirement outcomes for members. In our first article on the DC market, we explained how life insurers have an opportunity to make the most of the projected DC market growth. In it we set out our view that a successful strategy requires three pillars: an innovative and adaptable product and service offering, effective proposition and customer engagement channels, and a CEO-sponsored approach to DC growth.

Our second article explored how insurers must adapt their DC pension products to meet evolving customer needs. We explained how exploring diverse annuity structures, blending flexible and guaranteed product features and exploring risk-pooling mechanisms will be central to an insurer’s success. 

Figure 1: A three-pillar DC strategy for life insurers

In this third and final article we turn our attention to where the sector is heading, and to insurers’ proposition strategy. The first part provides an update on what the current pensions sector reform means for insurers, highlighting what DC providers need to do to create the right operating environment to navigate this changing market. The second part focuses on a how insurers can ensure innovative products and targeted communications reach the right customers at the right moment.

I. DC pensions reform: what does it mean for insurers?

The UK DC pensions market is poised for radical transformation driven by Government policy and regulatory changes. The Government, supported by the FCA and TPR, has three main objectives: i) sector consolidation, resulting in fewer and much larger pension schemes by 2030/35; ii) enhancing pension outcomes and increasing customer engagement with pensions; and iii) increasing the allocation of DC workplace pension funds¹ to UK private productive assets.

Figure 2: Stylised representation of the UK DC pensions reforms and their alignment with the Government’s objectives for the sector

Under the consolidation objective, multi-employer DC default arrangements will have to reach £25Bn assets under management (AuM) by 2030^*. This will set the stage for rapid consolidation in this market. We believe DC providers will consolidate through two main routes:

• internally (see letter A in the figure above), by merging different Group Personal Pensions arrangements, or transferring customers to a single default Master Trust structure, to meet the size threshold, including by leveraging the new contractual override regime when it is available; and

• externally (B), through possible M&A to increase the volume of AuM. Beyond the size threshold, we expect the "VfM" regime to drive increased competition and force schemes to consolidate into a smaller number of “good value” arrangements. This has been seen in the Australian market where the number of default funds has reduced by close to 50% over the last ten years – with a significant acceleration from 2021 following the introduction of the Performance Test for Superannuation which is comparable in spirit to the UK’s proposed "VfM" framework.²

We expect the combined effect of these reforms to reduce significantly the number of DC players in the market. There are more than 1000 DC schemes in the UK, including single- and multi-employer schemes. This number is expected to shrink over time following the introduction of the "VfM" rules, as these will provide incentives for single-employer schemes to transfer into multi-employer arrangements if they cannot provide sufficient "VfM".³ For the ~60 multi-employer DC schemes (including MasterTrust and providers of contract-based Group Personal Pensions), the pressure to consolidate will be even higher as they will be required to meet the £25bn threshold by 2030-5 in addition to the "VfM" rules. This will be a challenge for many. Currently, 10 private DC pension providers manage £23bn in assets or more, with only five having at least a single default arrangement of this size.⁴ In a multi-employer market where there are currently 31 Master Trusts and ~30 contract-based workplace providers, the Government is projecting that only around 15 to 20 DC “Megafunds” will remain by 2035.^5,6

Proactive strategic planning will be crucial for insurers to understand if they can and want to continue in this market. Insurers intending to be major DC market players in 2030-5 should consider what actions they should be taking now. The 2030-5 timeline may seem distant, but insurers seeking to play a major role in the DC market will need to undergo significant transformation (e.g., Master Trust acquisition, bulk transfer from single-employer trusts, internal consolidation). Others seeking to exit the DC market will need to make necessary preparations to extract maximum value from DC portfolio transfers and prepare for post-2030 (e.g., anticipate competitive pressures of other DC portfolio sales on the attractiveness/valuation of their portfolio, reassess workforce allocation and operating/business model).   

Secondly, the Government’s focus on channelling DC pensions savings towards UK productive assets will prompt insurers to review their investment strategy and capabilities. Signatories to the Mansion House Accord will need to re-evaluate asset allocation, investment risk appetite and governance to deliver on their promise to invest more in (UK) private markets without compromising customers’ outcomes and their reputation.⁷ We expect strong competition to access a limited stock of high-quality private assets in the next five years. Insurers and Asset Managers with expertise in illiquid and complex investments will be in a strong position to leverage it. Others may need to develop or acquire the capabilities quickly. Non-signatories will benefit from additional investment flexibility in the short term, but should consider medium-term risks, should the Government decide to use its reserve power⁸, alongside the risk of missing out on building the necessary expertise to invest in a wider range of assets.

Finally, in this environment of increased investment risk-taking, the Government and the FCA will introduce measures to enhance "VfM" and retirement support to improve retirement outcomes for customers. The Chancellor has announced a Pensions Commission focusing on pensions saving adequacy. It is expected to publish its findings and recommendations in 2027. Whilst we expect these government measures to take some time to crystallise into legislation and regulation, they form part of a broader set of reforms driven by regulators. These aim at boosting customer retirement outcomes and engagement with pensions (D). They include initiatives such as Targeted Support, the Pensions Dashboards and the "VfM" Framework. They will follow different timelines, but insurers willing to grasp these opportunities to revamp their customer engagement strategy will need to consider them in the round. We focus on these initiatives below.

II. Customer engagement in DC pensions: the roads ahead

Customer understanding and engagement with DC pensions communications, products and services are very low. They are a significant barrier to the successful introduction of new products and securing good retirement outcomes. DC providers, especially life insurers, must do more to bridge the gap between their products and customers, given customers’ behavioural biases regarding longevity risk coverage. This may require a rethink of customers’ pension journeys from enrolment and accumulation, to decumulation and beyond. 

In line with the UK Government’s pro-innovation stance, a range of new regulatory initiatives will offer more flexibility for firms to innovate and expand their customer support offering to address these challenges. These initiatives are being developed by different regulators and follow different timelines. Insurers will need to identify and assess the impact of these key initiatives as well as their interdependencies. These initiatives cut across key regulatory themes from investment disclosures to data management, new technology and, of course, customer support. The timeline and impact of these regulatory developments are summarised in the interactive diagram below:

Figure 3: click on the icons to read more about the key regulatory initiatives affecting UK pensions engagement and propositions

Regulatory reforms may help address longstanding DC pensions challenges, but regulation will only provide a framework within which each insurer will have to decide what the pathway ahead looks like. To thrive in this landscape and improve customer outcomes at scale, insurers will need to harness the power of data and technology to deliver more engaging, intuitive and personalised experiences.

In our view a successful pensions proposition strategy will focus on enhancing customer engagement, knowledge and access; and building the right infrastructure to offer tech-enabled solutions to customers.

1. Preparing customers to retire: a lifelong engagement journey.

Figure 4: Customer’s awareness of pensions:

Insurers must prioritise building long-term customer engagement as part of their DC strategy. FCA-mandated research underscored the importance of trust in driving customer receptiveness to pension suggestions and for decumulation choices.

Success will rely on:

• Improving enrolment processes and platform accessibility. 51% of customers find it challenging to access pension information. Developing intuitive user interface/experience and a streamlined onboarding journey will set the right tone for the overall customer experience. Without these foundations, access obstacles will prevent customers from acting on any communications and TS suggestions. Implementing passwordless platform logins, and mobilising employers to participate in onboarding and communications are expected to facilitate customer engagement.

• Delivering engaging and understandable communications. Asset managers offering DC solutions and delivering communications and services that are well received by customers pose a threat to insurers. While most insurers have removed technical jargon from their communications, long sentences and complex vocabulary can still hinder comprehension, particularly for vulnerable customers. This dimension will also be relevant, and become ever more important, for investment disclosures with the introduction of the CCI.
  
  To improve engagement further, pensions communications should utilise diverse channels tailored to wide audiences (not only 50+), leveraging visuals and peer comparison techniques. Looking ahead, insurers may want to drive consumer research to identify and address engagement blockers. For example, customers are expected to resist TS suggestions to increase their contributions, unless communications can clearly demonstrate that such suggestions are in their, rather than in the firm’s, best interests.

• Integrating new support solutions into the customer journey. This requires careful consideration of how TS, dashboards, and advice pathways work together to create a positive customer experience. Exploring ways to integrate dashboard data and TS suggestions will further improve this experience. Firms (especially vertically-integrated ones) should avoid considering new support avenues as additional options to overlay on their service offering, but instead integrate them into well-defined journeys adapted to customers.
  
  Maintaining high transparency about service limitations will mitigate mis-selling risks – especially because customers are likely to have “unrealistic” and confused expectations about the quality and number of data points used for e.g., TS suggestions.  But more importantly, transparency will help customers understand the full range of support options available. Disclosing the limitations of TS suggestions can encourage customers to seek more personalised recommendations and, ultimately, advice.⁹

2. Building the right infrastructure to offer technology-enabled solutions:

Leveraging technology will be crucial to maintaining operational quality and efficiency in delivering good retirement outcomes at scale:

• Building the right approach to data: Insurers with extensive and accurate customer data will be in a good starting position to enhance their pensions distribution and support channels. For TS, having access to deep pools of high-quality customer data will be a core component of success, but not the only one. The FCA advises against using “overly complex” characteristics or “overly granular” data for TS segments. This means firms will need to select a limited set of insightful framing metrics to create effective segments. They will need to take the same approach for 'excluding metrics' to ensure their matching tools can clearly identify customers that are 'off-segment'. Looking further into the future, both products and customer support journeys are likely to become more complex, making it difficult to compare hybrid products and how they meet customer needs. UK firms may already want to start considering sets of key standardised metrics to be able to assess retirement outcomes and success across their offering.¹¹
• Integrating data into powerful visualisation tools: Retirement savings are diversifying and becoming more complex. Visualisation is a central behavioural component of effective retirement planning, and we expect Dashboards and modellers¹² to become central to the customer experience in the years to come. Firms able to create visualisation solutions which aggregate the totality of customers’ retirement savings data whilst requiring minimal manual inputs will be best in class.¹³ Long-term plans to launch Pensions Dashboards and expand Open Data are essential for providing customers with a complete and accurate picture of their retirement savings. Integrating these initiatives into firms' offerings and digital strategies is essential for providing customers with a complete and accurate picture of their retirement savings.
• Leveraging the power of technology and AI: Many firms have been exploring AI's potential to improve operational efficiency and reduce advice costs for years, particularly through the use of robo-advisors as explored in our article. However, successful AI implementation needs to be phased, and thoroughly tested. Firms will likely start with low-risk AI use cases for customer support, communications and TS before scaling up. This could include using Machine Learning/AI models to identify key patterns for the development of TS situations, tailoring (TS) communications to customers’ level of understanding and profile, or monitoring Duty outcomes. Safe AI deployment will require a comprehensive risk management framework and stringent oversight of the data, systems and model used - including when they are provided by third-parties (AI checklist for insurers available here).

Conclusion

The scale and breadth of the DC pensions sector reforms mean that insurers need to update their strategy over the next few months and years if they want to secure a place in the sector into the next decade. Three areas stand out: 

• Consolidation, and how to achieve the necessary scale to thrive;

• review of investment strategies and capabilities to improve customer outcomes and meet investment pledges; and

• the development of enhanced customer engagement and support models building on the new regulatory proposals around TS, simplified advice and guided retirement while assessing the product offering.

There is a lot to do and many moving parts. Insurers need to take a holistic approach to consider the reforms and the impact on their business in the round. This should be a CEO-led initiative to enable engagement with all key areas of the business to identify the best pathway ahead.

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References

1. Group Personal Pensions and Master Trusts

2. APRA, Annual fund-level superannuation statistics, 2025, 2021  Australia’s Your Super performance test collect Supers’ data allowing for accurate comparison between Super Funds by customers : YourSuper comparison tool. If a MySuper product is rated as underperforming for two consecutive years, it can no longer accept new members until it is rated as performing. 

3. In CP 24/16 on a "VfM" framework for DC pensions, the FCA expects “an increase in competitive pressure based on value to savers, with an overall rise in "VfM" across the market, and with poorer value arrangements consolidating or leaving the market” – Source FCA CP24/16, https://www.fca.org.uk/publication/consultation/cp24-16.pdf 

4. Using data HMT, Source: https://assets.publishing.service.gov.uk/media/683971d8e0f10eed80aafb3a/27.05.2025_PM_-_final_report.pdf, Corporate Adviser and Go Pensions / https://corporate-adviser.com/rapid-asset-growth-sees-9-providers-pass-25bn-mark-ca-master-trust-and-gpp-defaults-report/

5,6.  Multi-employer workplace DC schemes – which are mostly composed of Group Personal Pension and Master Trusts

7. Pensions providers that are signatories of the City of London’s “Employer Pension Pledge” will also need to consider how enhanced transparency around investment in private assets will affect their reputation in the market. 

8. The Pension Schemes Bill grants the government a reserve power to set binding quantitative baseline UK asset allocation targets for certain pension scheme investments if deemed necessary (lack of progress in increasing UK asset allocation). This power, applicable to authorised DC Master Trusts and qualifying auto-enrolment schemes (excluding DB schemes and others), allows for mandated asset allocations in default funds. The power has a sunset clause in 2035.

9. Whilst the FCA initially expects TS to move some customers away from advice, this trend could contribute to rebalance that dynamic over time towards advice offering - CP25/17: Supporting consumers' pensions and investment decisions: proposals for targeted support

10. HMT, Targeted Support Policy Note, Source.

11. In Australia, the Government is considering introducing standard reporting on drawdown outcomes, at market level, source: Improving the retirement phase of superannuation | Treasury Ministers.

12. Pensions planning tool using models to calculate and displaying e.g., projected retirement cashflows for customers after they retire under different scenarios. 

13. “The Sprint identified credit reports, debt profiles and savings data, pensions and investments, in addition to existing Open Banking transaction data and peer-to-peer payment activity as fundamental to enable open finance.” – Source: FCA