The defined contribution (DC) pensions market is set for a pivotal year in 2026 that will be defined by scale, support, and sustainability, according to LCP.

The consultancy urged employers and trustees to act early to meet the challenges posed by new regulation taking shape, tax reform, and evolving member expectations.

LCP outlined five key areas of focus for employers and trustees, including preparing for the Pension Schemes Bill that will introduce value for money (VfM) requirements, small pot consolidation, and post-retirement defaults.

It urged trustees to start benchmarking their schemes against the likely VfM metrics now to avoid ‘surprises’ later down the line.

Trustee boards were encouraged to start building their familiarity with the post-retirement solutions emerging in the market, with most boards needing to dedicate time to understand the available options before the changes take effect in 2028.

Last year it was announced that unused DC pension pots were to be included in inheritance tax (IHT) calculations from April 2027, with this change needing to be communicated well in advance.

Inheritance strategies and retirement reviews will be crucial, LCP said, especially for those with larger pension pots.

Employers and trustees were urged to check with their providers to understand how members can be supported through these changes.

Another change announced last year was that national insurance contribution (NIC) relief on salary sacrifice pensions will be capped at £2,000 a year from April 2029.

LCP said that, although there was still time, planning was key, including considerations as to whether the benefit design for schemes continued to be the most appropriate.

Guided retirement support also emerged as a key consideration for 2026, with new rules from the Financial Conduct Authority (FCA) on targeted guidance set to come into force from April 2026.

This, alongside new decumulation duties, will require schemes to play a more active role in helping members navigate their choices, LCP said.

The consultancy argued there were benefits to investing in digital tools and personalised guidance to help members make informed decisions without overwhelming them.

Finally, LCP was seeing UK DC schemes doubling down on climate-related investing, with a continued focus on reducing carbon exposure.

Furthermore, it expected more private market allocations, especially among master trusts and providers, the greater use of pooled assets as consolidation accelerates, and continued discussions about concentration risk in the US equity market.

“The DC pensions market is facing a period of significant change, and trustees and employers have a real opportunity to get ahead of what’s coming,” said LCP DC practice partner, Lydia Fearn.

“Scale, support and sustainability will define the next phase of the market, and taking action now on investment design, VfM, and upcoming tax changes will help schemes respond effectively to new regulatory demands and deliver better outcomes for members.”

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