UK PensionWatch: Q1 2026 | Insight Investment

The Pension Schemes Bill continued its passage through Parliament, undergoing a debate in the House of Lords in mid-March and a third reading on 26 March 2026³. Points debated in the Lords included whether reforms would improve member outcomes while preserving trustee fiduciary duties. Peers scrutinised LGPS pooling and governance, alongside the Bill’s approach to DB surplus release, where many argued for stronger safeguards. For defined contribution (DC) schemes, debate covered the value-for-money framework, small-pot consolidation and wider concerns about consolidation’s impact on competition and consumer choice.

The Lords rejected a proposed government amendment intended to clarify the scope of trustees’ fiduciary duties. The amendment
would require the issuance of guidance on trustee investment duties within 12 months of that clause coming into force, and the
explanatory statement for the amendment suggested this could clarify concepts such as “financially material considerations”,
“environmental, social and governance considerations”, and the “best interests of members”.⁴ Concerns were raised by peers including that this could give policymakers undue influence over trustee decision-making.⁵

Notably, peers voted to strip the Bill of a proposed reserve power that would have allowed the government to mandate how some DC
pension schemes invest, if voluntary commitments under the Mansion House Accord were deemed insufficient. The government had
argued the power was intended only as a backstop.⁶

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³ Pension Schemes Bill: 3rd reading, 26 March 2026, UK Parliament. Information about the Pension Schemes Bill, including its progress
through Parliament, is available at: Pension Schemes Bill, UK Parliament.
⁴ Pages 20 and 21, Pension Schemes Bill: Third marshalled list of amendments to be moved on report (PDF), 20 March 2026, House of
Lords.
⁵ UK government hits obstacle in bid to clarify fiduciary duty and ESG, 30 March 2026, Responsible Investor.
⁶ House of Lords votes to remove mandation power from Pension Schemes Bill, 19 March 2026, Professional Pensions. 

The regulator published analysis based on broad assumptions, concluding that the insurance market is able to absorb schemes that may wish to buy out over the next decade; that there is space in the market for both insurers and superfunds to operate; that over the decade, the buy-out surplus is expected to increase to around £120bn; and that for schemes open to new entrants, ongoing funding surplus can be used to meet £30bn of the cost of accrual over the following decade.⁷

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⁷ Evolution of occupational defined benefit schemes 2025, March 2026, TPR.

The Pensions Regulator expects around three formal DB superfund applications in 2026 and is already in early discussions with roughly half a dozen other potential entrants, signalling growing momentum in the space. Speaking at an industry event, TPR’s David Walmsley, Director of Trusteeship, Administration and DB Supervision, said we are in a “defining period” for DB pension schemes, and that superfunds potentially offer a viable long-term destination for some schemes.⁸

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⁸ Slew of potential superfund providers in talks with TPR as DB enters ‘defining period’, 27 March 2026, Professional Pensions.

TPR issued detailed guidance on how trustees should address section 37 issues arising from the Virgin Media v NTL Pension Trustees
judgment, which cast doubt on the validity of historical amendments to contracted out DB schemes made without proper actuarial
confirmation.

The guidance sets out regulatory expectations and practical steps for governing bodies assessing whether their schemes are
affected. The statutory remediation route will only be available once the Pension Schemes Bill receives Royal Assent, but TPR said
trustees can instruct actuaries to begin preparatory work now.¹⁵

The trustee guidance was published after the Financial Reporting Council (FRC) issued guidance to help actuaries provide
retrospective confirmation to validate historical changes to pension scheme rules.¹⁶

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¹⁵ Potential remediation for past alterations to salary-related contracted-out pension schemes, 26 March 2026, TPR.
¹⁶ FRC issues guidance to support actuaries dealing with historic amendments to pension rules, 23 January 2026, FRC.

Ahead of detailed consultation on regulations, the government published a paper setting out the policy principles of the Department
for Work and Pensions (DWP) in relation to the “scale policy” of the government, which “aims to ensure [DC scheme] members
benefit from fewer, larger, and better run schemes that can deliver improved value and stronger, long-term performance”.¹⁷

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¹⁷ Pension Schemes Bill: Scale and Consolidation, 9 March 2026, DWP

Source: Bloomberg. Data as at 31 March 2026. TR = total return index

The conflict in Iran has materially increased risks to both growth and inflation. Higher energy prices are weighing on growth while simultaneously reinforcing inflation pressures, pushing back expectations for Fed easing and raising the prospect of rate hikes in Europe. As a result, government bond yields have risen and credit spreads have widened, albeit from historically tight levels. Corporate fundamentals remain resilient, supported by stable balance sheets while higher absolute yields have further increased the attractiveness of investment grade credit. The market continues to expect an elevated level of new issuance, with supply likely to remain an important theme through the first half of 2026, driven by M&A activity and rising AI-related capex. If the conflict de-escalates quickly, then the positive macroeconomic environment might start to reassert itself and spreads could begin to grind tighter again. However, a more extended conflict could continue to build pressure on corporate spreads given the implications for central bank policy rates, lower consumption and weaker corporate earnings. From a supply perspective, we are observing that primary markets are broadly continuing to offer new issue concessions, helping to cushion broader spread volatility, while rising dispersion favours a disciplined focus on active management, security selection and relative value. We also see continued opportunities from issuers accessing non-domestic markets, particularly US corporates issuing into European markets.

Spreads have widened in 2026 as conflict in the Middle East has introduced some uncertainty to the growth outlook. Combined with an upward shift in rates and a flattening of the high yield curve, we believe this is a compelling opportunity to add to high yield positions. The high yield market continues to be underpinned by resilient technicals, manageable default expectations and limited near-term refinancing pressure and we would expect these to reassert themselves over time. Defaults remain low by historical standards, and we see little reason for a material deterioration given the improving quality of public high yield debt issuers and the continued migration of weaker credits toward private markets. However, dispersion is rising, particularly in AI-exposed sectors and among highly leveraged, rate-sensitive borrowers. In this environment, we believe a cautious approach remains warranted, especially in sectors with elevated issuance such as technology. We favour maintaining an underweight to CCC-rated and highly cyclical exposures, while focusing on issuers with resilient cashflows, balance-sheet flexibility and clear refinancing paths. Credit selection will be critical, and we expect active security selection to remain the primary driver of returns through 2026. Looking ahead, we see promising opportunities to add exposure in telecommunications, healthcare, and other industries that are likely to be less affected by ongoing global disruptions.

The conflict in the Middle East has increased the downside risks to growth, but we believe these will be offset by fiscal stimulus in both the US and Europe, alongside the lagged impact of earlier central bank easing. Together, these forces should be sufficient to keep growth in positive territory. Elevated energy prices are likely to delay further rate cuts, which, for a floating-rate asset class, helps to keep income levels attractive. Market technicals remain constructive, in our view, with healthy investor demand supporting primary issuance across core asset-backed securities sectors such as autos and residential mortgage-backed securities. While parts of private credit and lower rated collateralised loan obligation tranches have come under pressure, higher-quality securitised assets remain well supported, with spreads broadly stable and valuations attractive relative to cash. We continue to see opportunities to add value through primary markets, where new issue concessions can offer potential for compelling risk-adjusted returns, as well as through selective rotation into higher-quality structures amid rising dispersion. Our focus remains on senior, well-protected parts of the capital structure, prioritising transactions with robust underwriting, strong servicing and structural protections that preserve cashflows in downside scenarios. We believe this positioning should help insulate portfolios from ongoing macro, inflation and geopolitical uncertainty, while allowing us to pursue attractive income and relative-value opportunities through 2026.