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Introduction
There's something for everyone in this edition of the Pensions Planner .
For DB schemes, the Government plans to change tax rules, to allow lump sum benefits to be paid from surplus – but only, it seems, for members who have reached minimum pension age . Schemes grappling with Virgin Media issues will welcome new guidance from the FRC, which encourages actuaries to take a pragmatic approach to remediation . Guidance from The Pensions Regulator is expected shortly.
For DC schemes, there is greater clarity as to the value-for-money framework which will apply from 2028: the FCA's revised proposals are a distinct improvement on the original version . Meanwhile the targeted support regime has been finalised for launch in April 2026 . The new regime, under which firms will be able to provide savers with ready-made "suggestions", is a potential game-changer for contract-based schemes .
There are two significant developments for trustees, whether DB or DC . First, the Government has launched a consultation on governance, with "TKU" and accreditation on the agenda . Some of the issues were explored in TPR's "21st century trusteeship" initiative, but the landscape has since changed, for example with the rise of master trusts; and this new consultation looks at administrators as well as trustees .
The second development is a surprise announcement about fiduciary duties . The Government plans to produce statutory guidance, to "clarify" the extent to which trustees can have regard to non-financial matters when investing . Easier said than done, perhaps; and whether guidance will in practice change trustee behaviours remains to be seen .
Many employers are facing a new challenge following the Autumn Budget . The national insurance advantages associated with salary sacrifice are to be capped, although with a long lead-in time – the change will take effect from April 2029 . For affected employees, the direct impact will be modest, but the additional NI burden for employers is potentially significant .
There is also the small matter of the Pension Schemes Bill – the most significant piece of pensions legislation in 20 years . New provisions have been added to the Bill at the Government's behest, including measures to index pre-1997 PPF compensation (another development announced in the Budget) . Otherwise the Bill has changed little during its journey to date . Expect the Bill to be enacted in Q2 2026, but bear in mind that only a handful of measures (Virgin Media remediation among them) will take effect at that stage.
Recent developments
Autumn Budget proves a mixed bag
In her Budget speech, the Chancellor announced changes relating to salary sacrifice, PPF and FAS compensation and DB surpluses. Further changes were outlined in a supporting policy paper. The changes are summarised in turn below.
Comment: The Chancellor did not (as some had feared) make changes to income tax relief, lump sum allowances or the annual allowance.
Salary sacrifice advantages to be capped
As many had predicted, the Government will curtail the advantages associated with pensions salary sacrifice.
From April 2029 onwards, the amount of salary which can be sacrificed without liability for national insurance contributions (NICs) will be capped at £2,000 per year.
Salary sacrifice is widely used as a way of reducing NICs. By way of reminder, employees pay NICs at 8% on earnings between £12,570 and £50,270, and at 2% on earnings beyond that. Employers pay NICs at 15% on earnings beyond £5,000.
As things stand, no NICs are payable on any earnings which are sacrificed for pension purposes. Under the Government's proposals, NIC savings will apply only to the first £2,000 of salary sacrificed in each tax year.
Relevant measures are in the National Insurance Contributions (Employer Pensions Contributions) Bill now before Parliament. The Government has published high-level guidance.
Comment: The change will have no direct impact in cases where an employee sacrifices no more than £2,000 of salary per year. Where more than £2,000 is sacrificed, the change will mean a modest increase in NICs for the employee, and a potentially significant increase in NICs for the employer. The employer increase may adversely affect the employee, if the employer's practice is to "share" its NIC savings.
In the run-up to 2029, employers may wish to consider whether a better outcome could be achieved by moving to a non-contributory pension model, at least for senior staff where terms are individually negotiated. Much will depend on the final form of the legislation.
Surprise move to index "pre-1997" compensation
The Government will introduce indexation for pre-1997 PPF and FAS compensation with effect from January 2027.
The relevant measures are set out in an amendment to the Pension Schemes Bill. Broadly speaking, compensation for pre-1997 pensions will be indexed in cases where such pensions were indexed under members' original pension schemes.
Indexation will be at the standard PPF rate, ie, unless otherwise determined, CPI capped at 2.5% per year.
The PPF welcomed the Government's announcement, and said that it would work towards implementation. The PPF subsequently published a Q&A.
Comment: The change will benefit those PPF and FAS members who, to date, have missed out on pre-1997 indexation which would have applied under original schemes; but note there is no provision for "catch-up" increases.
The change may prove to have some modest implications for ongoing DB schemes, eg as regards "section 179" valuations and benefit priorities on winding-up.
Government to facilitate member payments from surplus
The Government will enable DB schemes to pay surplus funds to members above normal minimum pension age as from April 2027, subject to scheme rules and trustee discretion.
Tax legislation will be changed so that a one-off lump sum is an "authorised payment", provided that the scheme is in surplus on a prescribed basis and the recipient has reached age 55 (57 from April 2028). The lump sum will be subject to income tax at the recipient's marginal rate.
Comment: This idea was mooted in the "Options for DB schemes" consultation. Curiously the proposed effective date is earlier than the planned launch date for "employer refund" powers under the Pension Schemes Bill – which is late 2027.
Pension Schemes Bill moves to House of Lords
The Pension Schemes Bill completed its passage through the House of Commons, and moved to the House of Lords.
In the Lords, the Bill had its first and second readings, and was considered in detail in grand committee.
Various tabled Governmen
- New measures covering PPF and FAS compensation (discussed above) and the abolition of the PPF administration levy.
- Minor changes to existing measures, including as to Virgin Media remediation (discussed below), the DC "minimum size" requirement and small pot consolidation.
Comment: So far all tabled opposition amendments have fallen by the wayside. Even the controversial "mandation" provisions have emerged unscathed. There is however scope for further amendment at report stage in the House of Lords.
Guidance planned, to "clarify" investment duties
The Government announced that it would take steps to "clarify" the fiduciary duties of trustees when investing.
The announcement was made in response to a proposed opposition amendment to the Pension Schemes Bill, NC17. NC17 provided for a change to the Occupational Pension Schemes (Investment) Regulations 2005, such that, when determining the best interests of members:
- trustees could have regard to systemic risks, impacts on living standards and members' views; and
- "trustees would be obliged to have regard to and manage for systemic risks and impacts on living standards if financially material.
The Pensions Minister told the House of Commons that the Government sympathised with the principles of NC17, but wished to consult and to preserve flexibility. It will therefore legislate to enable statutory guidance to be issued in due course. A subsequent parliamentary answer outlined what the guidance will cover.
Comment: Against the background of the Minister's announcement, amendment NC17 was not moved. So for the time being, the law as to fiduciary duties will remain "as is".
The Minister said that the proposed guidance will serve to clarify trustee powers, rather than to create obligations. There was however an obligatory element within NC17. And, even if guidance is permissive-only, trustees will want to be confident that decision based on it (eg which have regard to members' views) will not be susceptible to challenge.
Virgin Media measures refined
Some modest but helpful amendments were made to the Virgin Media remediation measures in the Pension Schemes Bill, at report stage in the House of Commons.
The amendments narrow down the (already limited) circumstances in which a potentially invalid amendment will be deemed non-remediable by virtue of prior legal proceedings or "positive action" by trustees.
A further amendment means that the remediation measure will now come into force when the Bill receives royal assent, rather than two months later.
Comment: At committee stage in the House of Lords, Baroness Bowles tabled an amendment which would have removed the provisions whereby amendments may be deemed non-remediable. However, the tabled amendment was withdrawn prior to the relevant sitting of the committee.
FRC issues guidance on Virgin Media remediation
The Financial Reporting Council published guidance for actuaries on Virgin Media remediation.
The remediation provisions mentioned above will enable trustees to validate amendments which might otherwise be void on Virgin Media grounds, by obtaining retrospective actuarial confirmation. For an amendment to be remediated, the scheme actuary will need to confirm that it is reasonable to conclude that the amendment would not have prevented the scheme from continuing to meet the historic reference scheme test (RST).
The guidance encourages actuaries to take a proportionate approach to confirmation. Key points are outlined below.
- Certainty is not required. Instead, an actuary should reach a reasoned and justifiable conclusion, based on relevant facts and circumstances after taking a proportionate approach to the gathering of data.
- Actuaries must work on the basis that the RST was met immediately before a relevant amendment was made, and consider only whether the amendment itself would have prevented the scheme from meeting the RST.
- In some cases, it may be evident from an amendment that confirmation can be given; for example, if the amendment did not reduce benefits, or affected only benefits unconnected with the RST (eg ill-health pensions or lump sum death-in-service benefits).
- In other cases, additional information may be needed. Relevant information might include documents relating to the amendment, such as advice or trustee minutes; RST confirmations or certificates which post-date the amendment; or (where there is a question as to earnings patterns) industry norms or confirmation from the employer.
The guidance includes hypothetical case studies, which illustrate possible approaches.
To view the full pdf, click here.
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.
