The government is sending a “clear steer” that the UK pensions industry needs to be made up of “bigger and better” schemes, according to Pensions Minister, Torsten Bell.

Speaking at the Association of British Insurers (ABI) Annual Conference, Bell said that while consolidation was already underway in the defined contribution (DC) market, current trends would still leave the UK with “a very large number of players”, potentially limiting schemes’ ability to deliver better outcomes for savers.

“We’re giving a clear steer that the pensions industry needs to be made up of bigger and better pensions schemes,” he said.

“What we’re saying is that we need to add winds to the sails of consolidation.”

As part of this push, Bell pointed to government proposals that would require DC schemes to reach £25bn in assets under management by 2030, or be on track to do so by 2035, to accelerate consolidation across the market.

However, he stressed that scale was not simply about efficiency, but about outcomes.

“Scale matters because it is a prerequisite to driving down costs for savers, but more importantly, it drives up returns, because only bigger schemes are able to invest in a wider range of assets,” Bell added.

This focus on scale and returns aligns with the government’s wider pensions reform agenda, including measures in the forthcoming Pension Schemes Bill to reduce fragmentation and administrative complexity.

Bell highlighted the small pots agenda as a key example, arguing that tackling unnecessary costs and complexity in the system would directly benefit savers over the long term.

Meanwhile, the minister also emphasised the importance of investment performance, particularly in the context of auto-enrolment (AE).

“One of the effects of AE is that more people are saving in their 20s, which makes a huge difference at retirement,” he noted, adding that relatively small improvements in net returns can translate into significantly higher retirement incomes over a full working life.

Against this backdrop, he argued that the UK DC pensions market remained an outlier internationally due to its limited exposure to private assets.

“The thing that makes the UK DC landscape stand out relative to the rest of the developed world is its underexposure to private assets,” Bell said, reiterating the government’s view that larger, better-governed schemes were more able to invest productively in the UK, while managing risk appropriately.

Bell also referenced the work of the revived Pensions Commission, which he said remained focused on ensuring that more people were on track for an adequate retirement.

He noted that despite ongoing debates over adequacy, contributions and investment, there was an unusually high level of agreement across the pensions industry on the direction of travel.

“One of the good things in the pensions space is that there is a remarkable level of consensus on building on the foundation of auto-enrolment,” Bell claimed.

“There is broad agreement on making sure that for lower and middle earners, there is a plausible route to retirement.”

---