Defined Benefit (DB) pension policy changes

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Dashboards

What’s changing?

The government has implemented legislation to enable the creation of pension dashboards which will enable individuals to view all of their workplace pension savings online and in one place
All workplace pension schemes and providers are expected to connect by their connection date (as set out in DWP guidance), with a legal longstop date for connecting of 31 October 2026
The government has said the non-commercial dashboard being developed by the Money and Pension Service, under its MoneyHelper brand, will be the first to launch. In future, dashboards developed by commercial providers will also be available

What are the next steps?

The largest schemes and providers have started to connect to the dashboards ecosystem
User testing is due to begin in summer 2025
The date from which dashboards will be made available to the public has not yet been set. The government is required to give the industry at least six months’ notice of this

What should schemes and employers do now?

All schemes should now be fairly advanced in their preparations for connecting to the dashboards ecosystem
The Pensions Regulator has issued initial guidance and a checklist on how schemes should comply with their dashboards obligations
We have also summarised the key actions for trustees in our Dashboards to-do list and Top 10 contract considerations for trustees
It is important employers are aware of this change and, in particular, when dashboards go live as this may prompt more queries from current and former employees about their pension

End game

What’s changing?

As part of their scheme’s next valuation, trustees and sponsors of DB schemes will, for the first time, be required to agree a legally binding long-term objective for their scheme. As a minimum, schemes will be required to target being fully funded on a “low dependency” basis by the time they are significantly mature. A scheme’s technical provisions and funding and investment strategy will need to be adjusted over time to ensure this target is met
The Pension Schemes Bill contains a number of measures which may impact the end game options for DB schemes. In particular, the Bill contains measures which will:

put the authorisation and supervision regime for DB superfunds on a statutory footing – this is likely to lead to new entrants joining this market increasing the options for schemes, and
relax the rules on the use of surplus held within DB schemes (see Use of surplus section below for more details)

Although most DB schemes are still likely to look ultimately to secure their members’ benefits with an insurer or transfer them to a superfund, these changes may impact when and how schemes look to get to that point
Trustees and sponsors of some DB schemes are considering running their scheme on for longer before they look to buy-out members’ benefits. This may be driven by a variety of factors including:

the trustees and sponsor believing the scheme is best placed to deliver a good service for its members, and
an intention to maximise the surplus within the scheme (with the scope for this to be used to enhance members’ benefits and/or be returned to the scheme’s sponsors)

Running a scheme on for longer may also align with the government’s objective of increasing the amount UK pension schemes invest in UK productive assets
The Pensions Regulator has recently published guidance for trustees and employers on the new models and end game options for DB schemes

What are the next steps?

It is expected the Pension Schemes Bill will receive Royal Assent in 2026
The new rules on use of surplus will require secondary legislation which is due to be consulted on in Autumn 2026 with a view to the new rules coming into force in 2027
The Regulator is due to publish guidance on use of surplus from DB schemes once the changes have been made to the current statutory rules

What should schemes and employers do now?

Trustees and sponsors of DB schemes should review their scheme’s long-term objective and funding and investment strategy in light of:

the new statutory funding and investment regime and DB funding Code (which apply to valuations dated on or after 22 September 2024)
the government’s proposals to relax the rules on use of surplus, and
the introduction of new end game options, including new entrants to the buy-out and DB superfund markets

Inheritance tax

What’s changing?

The government has announced plans to include most unused DC pension funds and death benefits payable under registered pension schemes and qualifying non-UK pension schemes within the value of a person’s estate for inheritance tax (IHT) purposes from 6 April 2027
HMRC has conducted a technical consultation, which focused on the processes required to implement these changes rather than the merits of the proposal. As such, the detail of the proposals could potentially change before 6 April 2027 but the principles seem unlikely to
Based on the current proposals, from 6 April 2027 trustees and pension providers will be responsible for calculating, paying and reporting any IHT that is payable on relevant benefits
The change will impact DB, DC and hybrid schemes, although survivors’ pensions paid under a DB scheme or section are due to be out of scope. As things stand, unused DC pension funds, dependants’ annuities and dependants’ drawdown are due to be in scope. Death in service benefits may also be caught
Numerous concerns have been raised about the workability of the proposals. In particular, there are concerns about the proposed process for calculating and paying any IHT due and the deadlines for doing so
For more information, read our speedbrief on the proposals

What are the next steps?

The response to HMRC’s technical consultation is awaited
Draft implementing legislation is due to be published in the second half of 2025 followed by a further technical consultation

What should schemes and employers do now?

Schemes and employers should assess the potential impact of these proposals and consider which benefits may be in scope
Once further details are known they should consider:

how this will impact existing processes for paying benefits following a member’s death, and
when and how to inform members and employees about this change

Pension review

What’s changing?

In July 2024, the Chancellor launched Phase One of the government’s Pensions Review. This has become known as the ‘Pensions Investment Review’
Phase One focused on four policy areas:

driving scale and consolidation of workplace DC schemes
tackling fragmentation and inefficiency in the Local Government Pension Scheme (LGPS) through consolidation and improved governance
the structure of the pensions ecosystem and achieving a greater focus on value for money (VfM) to deliver better outcomes for future pensioners, rather than cost, and
encouraging further pension investment into UK assets to boost growth across the country

The Interim Report for Phase One was published in November 2024 alongside consultations on driving consolidation in DC schemes and LGPS governance and consolidation
The Final Report of Phase One was published on 29 May 2025. This confirmed:

the introduction of new scale requirements for commercial DC auto-enrolment schemes to deliver fewer, larger DC “megafunds”, and
plans to reduce the number of investment pools within the Local Government Pension Scheme from eight to six

The government has confirmed it will launch Phase Two of its Pensions Review in “the coming months”
This will focus on the outcomes the industry is on track to deliver for future generations of pension savers and how those can be improved upon, with a particular focus on the “systemic issues that currently mean millions are under-saving for their retirement, and the significant inequalities that persist in later life”

What are the next steps?

The government is expected to launch Phase Two of its Review “in the coming months”. It has said it will announce the reviewers and terms of reference in due course

What should schemes and employers do now?

Measures reflecting several of the outcomes from Phase One of the Review are included in the Pension Schemes Bill
Look out for confirmation of the scope and timing of Phase Two of the Review and be ready to engage when it gets underway

Section 37

What’s changing?

The government has announced it plans to introduce a legislative fix to address the problems caused to certain contracted-out salary related (COSR) schemes by the judgments in Virgin Media v NTL Trustees
In a brief statement, the DWP has said it will “introduce legislation to give affected pension schemes the ability to retrospectively obtain written actuarial confirmation that historic benefit changes met the necessary standards”
Although the announcement was made on the same day the Pension Schemes Bill was introduced, the legislation is not included in the Bill. Given the nature of these changes, we expect the legislation will be set out in separate regulations on which we would expect the government to consult
A further case brought by trustees of the Pension Trust, Verity Trustees v Wood, was heard in March this year. It is considering a number of further issues related to the operation of the section 37 regime
Despite the promise of a legislative solution, the judgment in Verity Trustees will still be relevant for schemes potentially impacted by Virgin Media, particularly as it will:

help to determine which amendments required actuarial confirmation under the section 37 regime, and
determine whether the closure of a COSR scheme to future accrual between 6 April 1997 and 6 April 2016 was subject to this regime

For more information on the Virgin Media judgments, read our speedbrief

What are the next steps?

It is not yet clear when the regulations containing the legislative solution will be published
It is expected that the judgment in Verity Trustees will be issued in Autumn 2025

What should schemes and employers do now?

We will not know precisely how the legislative solution will work or its scope until we see the draft regulations. In the meantime:

in most cases, it is likely to be advisable for schemes that have already carried out an initial review to wait until we have the regulations before deciding on what, if any, further action to take (unless there is a pressing need to do something sooner, such as completing a buy-out or wind-up of the scheme)
schemes in the process of carrying out an initial review may want to complete this work because they will still need to know which historic amendments, if any, require actuarial confirmation using the legislative solution once it is introduced, and
schemes that have adopted a “wait-and-see” approach may want to wait until the draft regulations are published before deciding next steps

How schemes and sponsors respond to this announcement may also be influenced by the approach of their auditors. Trustees and employers may want to discuss with their auditors what impact the DWP’s announcement has on how any potential section 37 issues are reflected or reported in the scheme and/or sponsor accounts

Superfunds

What’s changing?

The government is planning to implement a statutory framework for the authorisation and supervision of DB superfunds. This will replace the existing non-statutory framework that currently exists, which is set out in guidance issued by the Pensions Regulator
As part of this, the Pension Schemes Bill sets out:

the gateway tests that must be satisfied in order for a scheme to be eligible to transfer to a superfund, and
the rules on when surplus assets can be paid out

On a related note, the government is still considering the merits of establishing a government consolidator for DB schemes, which it says would complement commercial consolidators. However, it is monitoring how the current market evolves and does not plan to legislate for this at this stage

What are the next steps?

Legislation to introduce a statutory authorisation and supervision regime for commercial DB superfunds is included in the Pension Schemes Bill
Further detail is due to be set out in regulations on which the government expects to consult in mid-2026
The government has indicated the statutory regime for superfunds and the related Code of Practice will come into force in early 2028

What should schemes and employers do now?

It is already possible for DB schemes that meet the gateway tests to transfer to a superfund. However, the introduction of a formal statutory regime may encourage further entrants to join the market
Therefore, schemes and sponsors should continue to monitor how this market develops and any opportunities that may arise

Use of surplus

What’s changing?

The government has confirmed it plans to amend the statutory rules that must be met before surplus can be returned to an employer from an ongoing DB schemes to make these more flexible. It is also considering making changes to make it easier to make payments out of surplus to members
Significantly, the government has said it is “minded” to reduce the funding level an ongoing scheme must meet, before surplus can be repaid, from buy-out to low dependency. This will potentially open the door for more schemes to make payments to employers out of surplus assets. Importantly, any repayment will still require trustee agreement and actuarial sign-off
To facilitate repayment of surplus, the government is also planning to:

introduce a statutory power for trustees to modify their scheme rules to provide for surplus sharing with employers, where their scheme rules do not currently allow this, or to remove restrictions that currently prevent this
clarify the legislative requirements to make clear that trustees must act in accordance with their overarching duties to scheme beneficiaries, which will remain unchanged – as part of this, it appears the government plans to remove the current statutory requirement for any return of surplus to be “in the interests of members”, and
repeal the requirement for trustees to have passed a resolution under section 251 of the Pensions Act 2004 before 6 April 2016 for them to be able to share surplus with an employer while their scheme is ongoing

Restrictions will not be placed on what extracted surplus can be used for
Legislation to make several of these changes is included in the Pension Schemes Bill. More details, including the change to the funding threshold and the modified conditions that will need to be met before a payment out of surplus can be paid to an employer, will be set out in separate regulations
The government is also considering the merits of introducing a statutory power allowing for direct payments out of surplus to members
The rate of tax applicable to surplus payments to employers from DB schemes will remain at 25%, although the government is continuing to consider the wider tax regime for surplus extraction. This may include introducing a mechanism for allowing lump sum payments to members out of surplus to be treated as authorised payments for tax purposes

What are the next steps?

Legislation to make these changes is contained in the Pension Schemes Bill with more detail to follow in regulations on which the government will consult separately
In its roadmap on pensions reform the government has indicated it currently expects these changes to come into force in 2027
The Pensions Regulator will publish guidance on the use of surplus once the legislative changes have been made

What should schemes and employers do now?

Monitor developments as the legislation may change as the Pension Schemes Bill goes through Parliament
Look out for the consultation on the draft regulations which will include the new funding threshold and conditions for payment of surplus out of an ongoing DB schemes
Companies with DB schemes that are in surplus on a low dependency basis may want to begin to explore how they might take advantage of this new flexibility once it is introduced. Options include:

seeking a direct payment of surplus assets out of their scheme, or
using surplus assets to fund DC contributions (in the same scheme or a separate arrangement)

Companies may also want to consider whether this impacts the long-term objective for their scheme (which they will need to agree with their scheme’s trustees as part of their scheme’s next valuation under the new funding requirements) and the timescale over which they might want to target buy-out or a transfer to a DB superfund
Trustees of DB schemes with a surplus on a low dependency basis should consider how these changes might impact their scheme, including the scheme’s long-term objective and funding and investment strategy. They should also consider how they might respond to a request from their scheme’s sponsor for a return of surplus
Trustees will need to have regard to the Regulator’s guidance (once it is published) and will also need to consider:

the impact of any payment on the security of members’ benefits – noting that the statutory threshold is a minimum funding requirement and trustees will be able to set their own threshold which needs to be met before they will agree to a return of surplus (e.g. low dependency plus a buffer or buy-out), and
the merits of sharing any surplus with members

Over the medium term trustees may want to put in place a surplus sharing policy/agreement with their scheme’s sponsor

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