Here is part one of 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 continued to be debated in the House of Lords on 19 March and 23 March. Further amendments were made to the value for money (VFM) provisions, along with amendments that deleted the controversial asset allocation provisions/power to mandate how defined contribution (DC) pension funds are invested. Other amendments agreed to include:
Additional exemptions from the requirement for DC pension funds to scale up to £25 billion.
A requirement to have regard to innovation and competition when determining asset scaling requirements/exemptions.
An increase to the time period during which a small pot would be considered to be dormant for the purposes of automatic consolidation from 12 months to 36 months.
Clarification that guided retirement provisions apply in respect of deferred members, as well as active and pensioner members.
Technical amendments to the provisions relating to the Pension Protection Fund (PPF) and Financial Assistance Scheme that introduce indexation (Consumer Price Index (CPI) capped at 2.5%) prospectively to payments in respect of pre-1997 accrual where former schemes provided for those increases.
The creation of a new unfunded public sector scheme to take a transfer of the AWE pension scheme, which is a trust-based DB pension scheme for employees and former employees of AWE plc, the Atomic Weapons Establishment. Since 2021, AWE plc has been wholly owned by the Ministry of Defence, and the pension scheme is backed by a crown guarantee. The assets held by the scheme are to be sold and the proceeds transferred to the treasury. Consequences for members are to be tax neutral.
A requirement for the secretary of state to publish a review, within 12 months of the bill being passed, of the long-term affordability, intergenerational fairness, fiscal sustainability and accounting treatment of public service pension schemes.
A requirement within three months of the bill being passed to make regulations to commence the provisions laid out in section 169(2)(d) of the Pensions Act 2004, which would allow the PPF to discharge liabilities in respect of compensation by way of a cash sum.
A requirement within 12 months of the bill being passed to conduct a review of all legislation, regulation and guidance governing marketing, financial promotion and member communications in relation to occupational and personal pension schemes. The review must consider whether existing rules unduly restrict pension providers from communicating risks, warnings, comparative information, providing guidance and targeted support on decumulation options, fund choice, consolidation and value for money, or restrict providers from supporting informed member decision-making through guidance or targeted support.
The VFM measures will now come into force on a date specified in regulations, rather than on royal assent.
Also of note, was that the House of Lords voted down the government’s amendment to insert a new section 36ZA into the Pensions Act 1995. This would have provided the primary legislation required for the government to issue statutory guidance on trustees’ investment duties, which the pensions minister had previously said would be issued for consultation soon. The new section would have required the secretary of state to issue guidance explaining aspects of the law relating to a scheme’s statement of investment principles and choosing investments. The draft wording says that this may include an explanation of the meaning of any expressions relevant to that law, and include example illustrations. Trustees and fund managers would be required to have regard to that guidance. The scope of the proposed guidance would be particularly wide, and could have the potential to change expressions and meanings already well understood by virtue of trust law. Perhaps the House of Lords are predicting that this clause will be reinstated further down the line, because they agreed to an amendment to the bill that would bring the clause into force two months after royal assent.
The next stage is that the bill will be read for a third time in the House of Lords (with opportunity for further amendments) on 26 March, and then the House of Commons will consider the amendments made to the bill by the House of Lords. A date for the latter has not yet been scheduled.
Amendments made to the National Insurance Contributions (Employer Pensions Contributions) Bill by the House of Lords were considered by the House of Commons on 23 March. This is the bill that imposes a cap on the amount of pension contributions that can be made (without being subject to national insurance contributions) as part of a salary sacrifice arrangement. One of the amendments made to the bill by the House of Lords was to increase the cap from £2,000 to £5,000. Other amendments include exemptions for basic rate taxpayers, and small and medium sized businesses and charities, along with a provision that would exempt salary sacrificed pension contributions over the limit from being included in the calculation of student loan repayments. The House of Commons rejected the House of Lords’ amendments to the bill on the grounds that they would alter financial arrangements made by the House of Commons. The next step is that the House of Lords will consider the House of Commons’ reasons on 25 March.
The Finance No.2 Bill has received royal assent and become the Finance Act 2026. This is the legislation that introduces inheritance tax (IHT) on unused pension pots and death benefits from 6 April 2027. The legislation was amended during the final stages to clarify that all death in service benefits, including in relation to those from life assurance only schemes, would be exempt from being included in the IHT calculation for the estate of a deceased individual.
In part two of our weekly update, we cover other developments from the PPF, MoneyHelper, the Pensions Administration Standards Association and The Pensions Regulator.
If you would like specific advice on any of these issues or anything else, please contact a member of our Pensions team.
