Defined Benefit (DB) pension policy changes

Quick links

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 and their state pension entitlement 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
Many providers and schemes have now connected. This equates to over 60 million pension records from workplace and personal pensions, representing around three quarters of the total. State Pension records are also available
User testing is underway although it appears to be slightly behind schedule. The PDP has completed the first rounds of industry expert testing and is now well into phase 2 testing with users from outside the industry. This will focus on ensuring the service is working as expected and identifying any critical or severe pain points that need to be resolved
Testing will be gradually scaled up over time until confidence is achieved in the performance of the service
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
The Regulator has issued updated dashboards guidance which sets out its expectations around matching and the information that needs to be providers to users where a positive match is made
The guidance also sets out the Regulator’s views on the meaning of ‘relevant members’. However, following feedback from schemes and administrators who have set up their systems on a different basis, the Regulator is reviewing this. It has urged schemes not to update their systems until it has confirmed the position

What are the next steps?

Several hundred schemes and providers have now connected to the dashboards ecosystem
User testing is underway and being scaled up during 2026
The date from which dashboards will be made available to the public has not yet been set. However, the CEO of MaPS has indicated that the MoneyHelper dashboard could go live in financial year 2027/28. In any event, 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

Related Resources

End game

What’s changing?

As part of their scheme’s first valuation with an effective date on or after 22 September 2024, 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 Act 2026 contains a number of measures which are likely to impact the end game options for DB schemes. In particular, the Act 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 published guidance for trustees and employers on the new models and end game options for DB schemes

What are the next steps?

The new rules on use of surplus in the Pension Schemes Act are due to come into force in April 2027
The Regulator has issued a statement on use of surplus from DB schemes and it is due to publish further guidance once the changes have been made to the current statutory rules
The statutory regime for DB superfunds in due to come into force in 2028

What should schemes and employers do now?

If they haven’t already done so, 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 applies to valuations dated on or after 22 September 2024)
the legislation which will 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

Related Resources

Inheritance tax

What’s changing?

The government plans to include most unused 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
This change will impact DB, DC, collective DC and hybrid schemes, although survivors’ pensions paid under a DB scheme or section or from a collective DC scheme are due to be out of scope. Unused DC pension funds, dependants’ annuities (other than those purchased together with a member’s annuity) dependants’ drawdown and most lump sum death benefits, including 5 year guarantees, are due to be in scope
Most death in service benefits payable under a registered pension schemes will be out of scope, including where they are paid on a non-discretionary basis
Personal representatives — who are already responsible for administering the rest of an individual’s estate — will be liable for calculating, reporting and paying IHT on relevant death benefits. Pension beneficiaries will also be jointly and severally liable for any IHT payable on the benefits they receive
This approach is reflected in the legislation contained in the Finance Act 2026
Schemes and providers will need to update their processes for processing and paying benefits following the death of a member quite extensively to reflect the new regime. In particular:

schemes will be required to provide information about the benefits payable on a members death and the recipients to a deceased member’s personal representatives. Basic information (including the total value of the benefits payable) will need to be sent within 28 days of this being requested by the personal representatives
the legislation includes a power which will enable personal representatives to require a scheme to withhold up to half of the benefits payable on a member’s death for up to 15 months while they work out the IHT position – schemes will need to put in place processes to validate and respond to these “withholding notices” and it is likely they will need to be set up to pay death benefits in two instalments should a notice be received
personal representatives and beneficiaries will be able to request that a scheme pays any IHT and interest that is due within 35 days where the total amount that is due is £1,000 or more – schemes will need to be ready to validate these requests and make prompt payments to HMRC where a valid request is received
schemes ought informing beneficiaries they might have to pay IHT and outlining the options for doing so. They will also need to inform beneficiaries where they are required to withhold some of their benefits

Therefore, this new approach will not be without its risks and complexities for schemes

In its response to the initial technical consultation, the government confirmed it will not bring discretionary death in service benefits under registered pension schemes into the scope of IHT. It has also decided to exclude non-discretionary death in service benefits (such as those payable under the NHS and other public sector schemes), which are currently in scope, from the IHT regime from 6 April 2027. This means from 6 April 2027 most death in service benefits payable from registered pension schemes will be out of scope of IHT, regardless of whether they are paid on a discretionary or non-discretionary basis
Schemes and providers also need to consider how they will inform their existing members about these changes and how they help their members understand the tax implications, particularly where they are encouraging members to complete or update an expression of wishes form
HMRC has issued draft information sharing regulations for consultation. These will set out the information sharing requirements between schemes, personal representatives and beneficiaries, which will underpin this new regime
HMRC has also issued a technical note clarifies various aspects of the new regime and how it will work. HMRC has said it will issue further guidance in its pension scheme newsletters and in further technical notes in the run-up to 6 April 2027

What are the next steps?

The Finance Act 2026 contains the legislation which will new introduce the new IHT and pensions regime, which will apply to deaths on and after 6 April 2027
Regulations setting out the information sharing requirements between schemes, personal representatives and beneficiaries, will be introduced alongside this
HMRC has said it will publish further guidance, tools and process maps to support personal representatives, pension schemes and beneficiaries ahead of implementation in April 2027
HMRC does not plan to update the Pension Tax Manual and the IHT Manual until these changes come into force. However, it has said it will issue draft updates for consultation in advance of this

What should schemes and employers do now?

Trustees and employers should assess how this new regime will impact their scheme
In particular, they should:

identify which of their benefits will be in scope for IHT under the new regime
speak to their administrators and legal advisers about how this will impact their existing processes for paying benefits following a member’s death – including how they will verify the identity of a deceased member’s personal representatives, how they will ensure information is provided within the tight statutory deadline and how this may impact the exercise of discretions by trustees

They also need to consider when and how to inform members and employees about this change. This is particularly important where members are completing or updating expression of wish forms

Related Resources

Pensions Commission

What’s changing?

The government has launched a new Pensions Commission. This builds on the Pensions Investment Review and the measures contained in the Pension Schemes Act
As expected, the Commission is focusing on the adequacy of pension savings and exploring the barriers stopping people from saving enough for their retirement
The Commission is also examine the gender pension gap and looking at why 45% of working age adults are saving nothing at all into a pension, with lower earners, the self-employed and some ethnic minorities particularly at risk
However, the Pensions Commission’s remit is not be limited to this. It has been tasked with considering the long-term future of the UK’s pensions system, including:

outcomes and risks for future cohorts of pensioners on current trajectories through to 2050 and beyond
how to improve retirement outcomes, especially for those on the lowest incomes and at the greatest risk of poverty or undersaving
the role of private pension provision and wider savings, building on the foundation of the State Pension, in delivering financial security in retirement and supporting those approaching retirement
the long-term challenges of supporting an ageing population, and
proposals for change beyond the current Parliament, that build on the measures in the Pension Schemes Bill and ensure Britain in the mid-21st Century delivers financial security in retirement through a pensions framework that is strong, fair and sustainable

The new Pensions Commission is being led by Baroness Jeannie Drake (a member of the original Commission), Sir Ian Cheshire and Professor Nick Pearce
The Commission published its interim report in May 2026. With its final report due in 2027
The interim report sets out the Commission’s initial findings and the emerging evidence base on which its final report and recommendations will be based
Alongside the Commission and as required by law, the government has also launched the latest State Pension Age Review, commissioning two independent reports for government to consider when deciding the State Pension age for future decades:

Dr Suzy Morrissey is due to report on factors government should consider relating to State Pension age, and the Government Actuary’s Department will prepare a report on the proportion of adult life in retirement

The findings from both reports will be considered as part of the Government’s State Pension Age Review. The findings may also be shared with the Pensions Commission as it considers the longer-term future of the pensions system as a whole
The Pensions Commission follows Phase One of the government’s Pensions Review, which has become known as the ‘Pensions Investment Review’. The Final Report of Phase One was published on 29 May 2025
Measures reflecting several of the recommendations from the Pensions Investment Review are included in the Pension Schemes Act 2026

What are the next steps?

The Commission publish its interim report in May 2026
You can share your views on the interim report through an online form or by emailing views.pensions2050@dwp.gov.uk before 14 July 2026
Its final report is due to be published in 2027

What should schemes and employers do now?

Consider responding to the Commission’s interim report
Look for other opportunities to engage with the Commission and monitor developments

Related Resources

Speedbrief - Government launches Pensions Commission and State Pension Age Review

Salary sacrifice

What’s changing?

In the 2025 Budget, the government announced that, from 6 April 2029, it will cap the amount of employee pension contributions made using salary sacrifice that are exempt from national insurance contributions (NICs) at £2,000 in a tax year. Employee pension contributions made through salary sacrifice arrangements above this amount will be subject to employer and employee NICs like other employee workplace pension contributions
Salary sacrifice is a feature of many workplace pension schemes in the UK. In this context, salary sacrifice involves an employee giving up the right to part of their salary in return for higher pension contributions from their employer. This is achieved by varying the employee’s terms and conditions of employment. An employee may also sacrifice a one-off payment such as a bonus where employers permit this
Where salary sacrifice is used, both the employer and employee benefit from a reduction in their NICs. This is because an employee’s salary is subject to employer and employee NICs, whereas employer pension contributions are not. Therefore, both parties benefit where salary is sacrificed in exchange for higher employer contributions
When the new cap is introduced it will mean that (based on current rates of NICs):

employers will have to pay 15% NICs on amounts sacrificed above the new cap, and
most employees will have to pay extra NICs on these amounts too (at either 8% or 2% depending on the amount of their salary)

This additional tax may lead some employers to review their existing pension salary sacrifice arrangements
Contributions made through salary sacrifice, like all pension contributions, will still be exempt from income tax (subject to the annual allowance, which is not changing)
Legislation to enable the government to introduce this cap through regulations is contained in the National Insurance Contributions (Employer Pension Contributions) Act 2026. Much of the detail has been left to be set out in the implementing regulations
The Act enables the government to put in place regulations to introduce the cap from the 2029-30 tax year

What are the next steps?

The National Insurance Contributions (Employer Pension Contributions) Act 2026 received Royal Assent on 29 April 2026
The Act enables the government to put in place regulations to introduce the cap from the 2029-30 tax year

What should schemes and employers do now?

Where an employer has a pension salary sacrifice arrangement in place it should look out for regulations to confirm of how the cap will work (e.g. for employees with multiple jobs)
Affected employers will need to assess how this cap will impact their own costs and how much additional tax their employees will have to pay
Employers will need to consider how these additional costs can best be absorbed

Related Resources

Speedbrief – Chancellor caps pension salary sacrifice

Section 37

What’s changing?

The government’s promised legislative fix to address the problems caused to some contracted-out salary related (COSR) schemes by the judgments in Virgin Media v NTL Trustees is contained in the Pensions Schemes Act
The legal solution, which is now in force, enables schemes to validate an amendment which:

was subject to the requirements under Regulation 42(2) of the Occupational Pension Schemes (Contracting-out) Regulations 1996 when it was made
has been treated by the trustees of the scheme as a valid alteration, and
is one where the trustees have taken no “positive action” on the basis that they thought the alteration was void (broadly, this means trustees have not already told members in writing that a historic amendment is void or that they have taken or plan to take any other step in relation to the administration of the scheme as a result of thinking an historic amendment is void)

If trustees want to use this new power to validate an historic amendment, they will need to ask the scheme actuary to confirm that, in the actuary’s opinion, it is reasonable to conclude that the alteration would not have prevented the scheme from continuing to satisfy the statutory ‘reference scheme test’ at the time it was made
The legislation allows an actuary to take ‘any professional approach’ (including making assumptions or relying on presumptions) that is open to the actuary. They can also act on the basis of the information currently available to them, as long as they consider it sufficient for the purpose of forming their opinion
The success of this solution will depend on whether scheme actuaries feel able to give the necessary confirmations. The Financial Reporting Council (FRC) and Institute and Faculty of Actuaries (IFoA) have published guidance to assist actuaries who are asked to provide confirmations to validate historic amendments
The guidance is helpful and confirms that “The test does not require the scheme actuary to have certainty about whether the rule alteration would not have prevented the pension scheme from continuing to meet the reference scheme test. Instead, the test requires the scheme actuary to reach a reasoned and justifiable conclusion taking into account all the relevant facts and circumstances identified after taking a proportionate approach to the gathering of data”. This should give actuaries scope to provide confirmations in most cases
The Pensions Regulator has also issued guidance for trustees who are considering using the legislative fix
A further case brought by trustees of The Pension Trust, Verity Trustees v Wood, was heard in March 2025. It is considering a number of further issues related to the operation of the section 37 regime
Despite the legislative solution, the judgment in Verity Trustees is still likely to be relevant for schemes potentially impacted by Virgin Media, particularly as it is expected it will:

clarify which amendments required actuarial confirmation under the section 37 regime (and which may benefit from the legislative solution), 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 legislative solution, read our speedbrief

What are the next steps?

The legislative solution is now in force
The judgment in Verity Trustees is expected to be issued some time in 2026

What should schemes and employers do now?

Schemes that have reviewed their historic amendments - to identify any that might be invalid as a result of the Virgin Media case - may want to consider with their legal advisers and scheme actuary whether they can make use of the legal solution to address any areas of uncertainty
Schemes do not need to take immediate action and many may want to wait for the decision in Verity Trustees before deciding on their next steps. However, in some cases, for example, where a scheme is looking to complete a buy-out or wind-up trustees may want to take steps to use the legislative solution, where necessary, now it is in force
Schemes that have adopted a ‘wait and see’ approach should, in due course, consider with their legal advisers whether they identify and take steps to validate any historic amendments that might otherwise be invalid

Related Resources

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, which is set out in guidance issued by the Pensions Regulator
As part of this, the Pension Schemes Act sets out:

the gateway tests (referred to in the Bill as “onboarding conditions”) 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

The onboarding conditions in the Act are similar to the gateway tests contained in the Regulator’s existing guidance. However, there are some notable differences. In particular, the first onboarding condition is that the scheme is not in a position to buy-out when the trustees apply to the Regulator for a potential superfund transfer to be approved. In contrast, a scheme can only transfer to a superfund under the existing framework where it cannot afford to buy-out at the time the transfer is being considered or in the foreseeable future
The government is still considering the merits of establishing a government consolidator for DB schemes, which it says would complement commercial consolidators. However, no decisions have been taken on this and it is continuing to monitor how the market evolves

What are the next steps?

Legislation to introduce a statutory authorisation and supervision regime for commercial DB superfunds is included in the Pension Schemes Act
Further detail is due to be set out in regulations on which the government expects to consult in Summer 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

Related Resources

Use of surplus

What’s changing?

The government is planning to amend the statutory rules that must be met before surplus can be returned to an employer from an ongoing DB scheme 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 is proposing 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 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 Act. 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 published draft regulations for consultation on 10 June 2026. The consultation closes on 2 September 2026
The regulations set out further conditions that must be met before surplus can be repaid to an employer from an ongoing DB scheme and the process that must be followed. As expected, they provide that surplus can only be released where a scheme is funded above the low dependency funding threshold. However, the funding test set out in the draft regulations also includes a forward-looking element as the regulations provide that the scheme actuary must confirm that the scheme is not only above the low dependency threshold at the time of the surplus release but also that it is expected to remain at or above it over the following 3 years
The Pensions Regulator also published a statement alongside this with the aim of support discussions between trustees and employers on surplus release options. It provides:
- - early views on the principles that trustees should consider when releasing surplus
  - some high-level illustrative examples of how trustees should go about surplus release now, if permitted under their scheme’s trust deed and rules, and how it could change when new legislation is introduced
The government has also confirmed it is planning to introduce legislation to enable direct payments out of surplus to be made to members and beneficiaries who are above normal minimum pension age. HMRC has indicated that for these payments to be made, schemes must be in surplus on the same funding basis as applies to payments to employers
The rate of tax applicable to surplus payments to employers from DB schemes will remain at 25%
HMRC has said that direct payments to members and beneficiaries out of surplus will be taxed as pension income at the individual’s marginal rate of tax

What are the next steps?

Legislation to enable payments of surplus to employers out of an ongoing scheme is contained in the Pension Schemes Act and the draft Occupational Pension Schemes (Payments to Employer) Regulations 2027
The government has indicated it expects these changes to come into force in April 2027
Changes to enable direct payments to members and beneficiaries out of surplus are due to be included in the Finance Bill 2026-27 and come into force on 6 April 2027
The Pensions Regulator will publish guidance on the use of surplus once these legislative changes have been made

What should schemes and employers do now?

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 need to have regard to the Regulator’s statement 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

Resources

© Eversheds Sutherland. All rights reserved. Eversheds Sutherland is a global provider of legal and other services operating through various separate and distinct legal entities. Eversheds Sutherland is the name and brand under which the members of Eversheds Sutherland Limited (Eversheds Sutherland (International) LLP and Eversheds Sutherland (US) LLP) and their respective controlled, managed and affiliated firms and the members of Eversheds Sutherland (Europe) Limited (each an "Eversheds Sutherland Entity" and together the "Eversheds Sutherland Entities") provide legal or other services to clients around the world. Eversheds Sutherland Entities are constituted and regulated in accordance with relevant local regulatory and legal requirements and operate in accordance with their locally registered names. The use of the name Eversheds Sutherland, is for description purposes only and does not imply that the Eversheds Sutherland Entities are in a partnership or are part of a global LLP. The responsibility for the provision of services to the client is defined in the terms of engagement between the instructed firm and the client.

Connect with us