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1 Pension Schemes Bill
The Pension Schemes Bill, with important changes affecting defined benefit (DB) schemes, defined contribution (DC) schemes and the Local Government Pension Scheme, is currently going through the Committee stage in Parliament.
Key provisions include:
DB surplus extraction: it will become easier for employers to access surplus in DB schemes. The Bill introduces a new statutory power for trustees to modify a scheme (unless in winding-up) by resolution to give a power to make payments out of surplus to employers, subject to any restriction specified in the resolution. Where there is already such a power in the scheme rules, a resolution may remove or relax any restriction imposed by the scheme on the exercise of the power. Further detail will be set out in regulations. The Government anticipates that these legislative changes will be in force by late 2027.
For further detail on surplus extraction and the other DB aspects of the Bill (including the legislative regime for superfunds, the pension protection levy, and recoupment of overpaid pension), see our recent update.
DC pension evolution: The DC provisions in the Bill are wide-ranging, and include:
- a forthcoming 'value for money' regime for DC default arrangements, on which there has been an FCA consultation;
- new requirements for schemes and providers to offer a range of decumulation options, including one or more default solutions designed to scheme members with a regular income in retirement;
- consolidation in the DC market by requiring 'megafunds' with minimum scale; and
- a potential 'mandation' power through which the Government could require master trust and group personal pension default arrangements to invest at least a specified percentage of the assets in private markets, including in the UK.
For further detail on the DC aspects of the Bill, see our recent briefing.
2 The Virgin Media case
The Government is proposing amendments to the Pension Schemes Bill to address issues arising from of the Court of Appeal's decision in the Virgin Media case. This decision called into question the validity of past alterations made to salary-related contracted out occupational pension schemes, without the prior actuarial confirmation required being given (see our alert and Q&As and WHiP Issue 117 for further detail on the decision).
The draft provisions set out a mechanism which would enable affected pension schemes to retrospectively obtain written actuarial confirmation that historical benefit changes met the necessary standards where they meet the conditions to be "potentially remediable alteration". Broadly this means that the alteration would have needed an actuarial confirmation when it was made, the trustees treated the amendment as a valid alteration, the trustees have not taken any "positive action" on the basis that they consider the alteration to be void and it is not excluded from the scope of remediation.
The following steps will be treated as a "positive action":
- notifying members in writing that they consider the alteration was void (due to non-compliance with the relevant statutory requirements) and that they will administer the scheme on this basis; or
- taking any other steps in relation to scheme administration (due to considering the alteration to be void) which alter (or will alter) payments to or in respect of members.
A historical rule amendment will be excluded from the scope of remediation if any question relating to the validity of that amendment (relating to the relevant statutory requirements) has already been determined by a court, or was in issue in legal proceedings commenced on or before 5 June 2025 to which the trustees were (or are) a party, including where those proceedings have been settled.
3 Inheritance tax on pensions
The Government has responded to its consultation on the application of inheritance tax to registered pension scheme interests following a member's death from 6 April 2027.
A significant change to the original proposals is that it will be the deceased individual's personal representatives (PRs), rather than the scheme trustees/administrators, who are liable for reporting and paying any inheritance tax on any "unused pension funds". The beneficiaries will be jointly and severally liable for paying any inheritance tax.
The Government has also amended its proposals so that death in service benefits payable from registered pension schemes (DB or DC) will not be in scope of inheritance tax. As under the original proposals, the exemption for payments to the spouse or civil partner or charities also applies.
4 VAT – investment costs
HMRC has announced increased availability of VAT recovery for DB pension schemes' investment costs, with immediate effect. We await detailed information about the change, so the extent of the good news is unclear. For most schemes, it will be a case of waiting to see what the final guidance (scheduled to be published by the Autumn) says, but others should take action now to protect their position in respect of the last four years. For more on this see our recent briefing.
Spotlight on Pensions
For more detail on all of the above developments (and more), please see the latest edition of What's happening in Pensions. Use our Pensions Radar to keep track of future changes in UK law affecting work-based pension schemes.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
