Here is our weekly summary of key legal and regulatory developments relevant to occupational pension schemes that you might have missed, with links for further information.
The Pension Schemes Bill has been passed by the House of Commons and is now being considered by the House of Lords. It is due to have its second reading, and first debate, on 18 December. The draft bill has been updated to incorporate the amendments proposed by the government on 3 December relating to: the costs of the Pension Protection Fund (PPF) Ombudsman being met out of the general levy of The Pensions Regulator (TPR); indexation of PPF and Financial Assistance Scheme (FAS) compensation in relation to pre-1997 accruals; administration expenses of the PPF and Fraud Compensation Fund; asset pooling provisions in the Local Government Pension Scheme; the operation of small pot consolidation; calculating the £25 billion threshold for the asset scaling requirements where there are connected providers and the Virgin Media remedy. More details about these amendments were contained in last week’s update.
The government has published Finance (No. 2) Bill, which includes the inheritance tax changes that will come into effect on 6 April 2027. This will be debated in the House of Commons on 16 December. As announced at Budget 2025, the changes include a new section 226A of the Inheritance Tax Act 1984, that if personal representatives “know that they are, or have reason to believe that they may be, liable for tax attributable to notional pension property of the deceased in relation to the scheme”, they may direct a pension scheme administrator to withhold up to 50% of the taxable benefits for up to 15 months after the end of the month in which the deceased died. Personal representatives will also have the power to direct pension scheme administrators to pay inheritance tax due to HM Revenue and Customs (HMRC) from the withheld benefits. There are some limited exceptions.
We mentioned in last week's update that the government had said it would legislate in the next few weeks to introduce the £2,000 cap on salary sacrifice that was introduced at Budget 2025, despite the cap not coming into effect until April 2029. Legislation has now been introduced into the House of Commons that has the effect of capping the amount of salary that may be sacrificed at £2,000 before employee and employer national insurance contributions become payable. This does not prevent employees from sacrificing more than £2,000 per year in exchange for higher employer contributions. All sacrificed salary, including that above the cap, will continue to benefit from income tax relief and count to lower other thresholds; for example, for the purposes of means tested benefits and the personal allowance taper. HMRC has produced further guidance. The legislation is scheduled to have its second reading in the House of Commons on 17 December 2025.
TPR has announced the launch of an initiative to explore the approach of pension schemes to investing in growth assets. It is looking at the range of market opportunities and investment vehicles available to pension schemes, their limitations, barriers and enablers, with an emphasis on UK investment opportunities. TPR is focusing on defined contribution and defined benefit schemes with material scale and plans to complete its industry engagement by the end of 2025. TPR will share findings with government and will publish a market oversight report next year.
On 27 October 2025, a draft order was laid before Parliament bringing environmental, social and governance (ESG) ratings providers within the remit of the Financial Conduct Authority (FCA) from 29 June 2028. The Parliamentary process has almost completed and the FCA is consulting on its rules and guidance in relation to the same. The FCA says that its aim is to make ESG ratings more transparent, reliable and comparable, support better decision-making and greater confidence in the market and be proportionate and support growth in sustainable finance. Consultation closes on 31 March 2026.
If you would like specific advice on any of these issues or anything else, please contact a member of our Pensions team.
