UK PensionWatch: Q2 2026 | Insight Investment

After both the House of Commons and House of Lords agreed on the final text of the bill, it received Royal Assent to become the Pension Schemes Act 2026³. The Act is the most significant UK pensions legislation in years, including rules on DB surplus flexibility, DC consolidation, value-for-money oversight, default retirement solutions and LGPS reform.

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³ Pension Schemes Bill becomes law, 29 April 2026, UK Parliament.

The Second Pensions Commission, announced by the government in July 2025, published an interim report⁴, which highlights several points.

• An ageing population requires a renewed and sustainable settlement for retirement adequacy
• Pension policy should enable everyone to achieve a decent standard of living in retirement with the non-means-tested State Pension as a foundation
• Automatic enrolment has increased workplace pension saving but not enough for low and middle earners
• Many people are not saving at all, and the length of working lives is also a driver of adequacy
• Decumulation choices decisively impact people’s retirements and stronger guardrails are needed
• The existing settlement provides firm foundations but needs strengthening for the long term

The final report of the Commission is due in 2027.

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⁴ Pensions 2050: Evidence and Future Priorities (PDF), May 2026, The Second Pensions Commission.

In a new report the industry body says UK pension schemes have the appetite to invest in the UK, and outlines changes to encourage further investment⁵. The report outlines four necessary changes:

1. Better policy coordination and accountability across Government and public bodies.
2. Public finance bodies that genuinely enable pension access through suitable vehicles.
3. A stable regulatory environment that supports long-term investment and a shift from cost to value.
4. Improved guidance, training and engagement across trustees, advisers and consultants, allowing time for understanding to be gained and decisions to be taken.

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⁵ 2030 Ready: From commitment to deployment, May 2026, Pensions UK.

The DWP opened a consultation on regulations for DB surplus release (see above for details)¹². The deadline for responses is 2 September 2026.

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¹² Surplus Flexibilities for Defined Benefit Pension Schemes: Unlocking Value for Employers and Scheme Members, 10 June 2026, DWP.

Pensions Minister Torsten Bell announced that the government will review the use of FAAs¹³.

Bell explained that after the Stagecoach transaction in December 2025, when existing legislation was used in a “novel” way for an asset manager to assume responsibility for another employer’s DB pension scheme in a way, the government will “review this area of legislation to ensure the regulatory standards and safeguards evolve and keep pace with the innovation we are seeing in the pension market”.

Bell added: “Where providers are looking to run schemes for profit, this can work in scheme members’ interests but regulatory standards and safeguards must evolve to match the new risks this creates”.

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¹³ Flexible Apportionment Arrangements: Statement made on 16 June 2026, UK Parliament.

The Pensions Regulator (TPR) issued a series of notable publications over the quarter.

• New guidance for trustees and employers of DB schemes, and DB and DC hybrid schemes, covering different ways to achieve their schemes’ long-term objectives¹⁴. The guidance covers running on, achieving self-sufficiency, transferring to a consolidator, and an insurance transaction.
• Coinciding with the publication of the DWP’s consultation on draft regulations, TPR issued a statement to “support discussions between trustees and employers on surplus release options”¹⁵. The statement outlines principles for trustees to consider, along with examples of how new legislation could change how trustees approach these issues.
• An article by Ben Gunnee, TPR’s Executive Director of Market Oversight, focused on the potential for further innovation in the DB landscape, with a focus on endgame solutions¹⁶. The article discusses the Stagecoach transaction and questions for trustees considering such approaches.

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¹⁴ New models and options in defined benefit pensions schemes, 3 June 2025, TPR. 

¹⁵ New defined benefit surplus flexibilities, 10 June 2026.

¹⁶ New thinking for trustees considering endgame solutions for defined benefit schemes, 19 June 2026, TPR.

Source: Bloomberg. Data as at 30 June 2026. TR = total return index

Spreads tightened sharply in the second quarter, supported by strong earnings momentum and hopes of conflict de-escalation. This move returned valuations close to the tightest levels since the global financial crisis. However, elevated all-in yields continued to draw investor demand despite heavy primary supply. This issuance has been led by hyperscaler tech companies, whose capex financing needs remain relentless. They are accessing global markets at pace across a range of different currencies. If this trend persists, then the tech sector’s weight in major bond indices will rise materially, albeit from a low base. For now, we favour US dollar issuance, where the market depth provides greater resilience to near term saturation. That said, we are closely monitoring non-dollar markets for emerging relative-value opportunities. Strong tech supply is exerting pressure on spreads within that sector, with AA-rated issuers now trading in line with A-rated credits in other sectors, reflecting ongoing supply overhang. Where mandates allow, we see an opportunity to add selectively at these levels. In this environment, dispersion is rising, reinforcing the importance of disciplined active management, careful security selection, and a focus on relative value.

Despite a volatile global backdrop, high yield markets have shown notable resilience, with steady income continuing to underpin returns. Encouragingly, many issuers remain disciplined, actively deleveraging and managing balance sheets in contrast to rising leverage at the sovereign level. However, the market is becoming increasingly differentiated, with rising levels of dispersion among issuers. AI is a key catalyst for this, driving new supply to fund the infrastructure build out, while also disrupting existing business models, especially in the software sector. Although there are positive signs that the conflict in the Middle East may be on a deescalating path, the outlook remains uncertain. This leaves us with a bias towards US issuance given that the US has a stronger growth outlook and is more insulated from higher energy prices. 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. We see promising opportunities to add exposure in telecommunications, healthcare, and other industries that are likely to be less affected should the conflict flare up once again.

Fears that the outbreak of war could weaken the US growth outlook proved short-lived, as economic data continued to point to resilience while falling energy prices helped ease inflation risks. In the US, the labor market showed signs of improvement, which should counterbalance higher gasoline prices. If the Strait of Hormuz fully reopens, energy prices should decline further, which would take pressure off the Fed to hike. In Europe, the European Central Bank has tightened policy, and while the growth outlook has weakened, we believe the region should avoid recession. Given this relatively benign outlook, demand has shown no signs of softening, with new issues typically well oversubscribed and secondary markets well bid. Issuers have increased supply to take advantage of these conditions, particularly in consumer-related sectors. Our focus remains on senior, well-protected parts of the capital structure, prioritizing 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.