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
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?

Many schemes and providers have now connected to the dashboards ecosystem
User testing is underway and will continue into 2026
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

Related Resources

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 Spring 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

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
The government has confirmed death in service benefits payable under a registered pension scheme will be out of scope, including where they are paid on a non-discretionary basis, although it is currently unclear whether this exemption will extend to life assurance only members (see below)
Initially, the government proposed that trustees and pension providers would be responsible for calculating, paying and reporting any IHT that is payable on relevant benefits. However, following consultation, the government decided that personal representatives — who are already responsible for administering the rest of an individual’s estate — will be liable for reporting and paying IHT on relevant benefits rather than trustees or providers. Pension beneficiaries will also be jointly and severally liable for any IHT payable on the pension benefits they receive
This approach is reflected in legislation contained in the Finance (No.2) Bill which was introduced in Parliament on 4 December 2025. While this change of approach may ease the burden on schemes and providers to some extent, it is likely they will still 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:

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 will be responsible for informing beneficiaries they might have to pay IHT and outlining the options for doing so. They will also need to inform beneficiaries that up to half of their benefits may need to be withheld for up to 15 months

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 death in service benefits payable from registered pension schemes will generally be out of scope of IHT, regardless of whether they are paid on a discretionary or non-discretionary basis
However, as drafted, the exclusion in relation to death in service benefits will only apply where an individual was an “active member” of a scheme and employed by a scheme employer immediately before their death. This leaves a question mark over whether this will cover life assurance only members or death in service benefits payable under a life assurance only scheme, as they would not typically be considered to be active members who are accruing benefits under a scheme. We are awaiting clarification on this from HMRC
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 asking members to complete or update an expression of wishes form

What are the next steps?

The Finance (No.2) Bill is currently going through Parliament and is expected to receive Riyal Assent by April 2026
The new IHT and pensions regime will apply to deaths on and after 6 April 2027
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

What should schemes and employers do now?

Schemes and employers should assess the impact of the new regime and consider which benefits under their scheme will be in scope
In particular, they need to

identify which of their benefits are in scope under the new IHT on pensions regime
map out their existing processes for paying benefits following a member’s death – including what happens when they are notified of a member’s death, how they identify potential beneficiaries, how they decide who will receive the death benefits (where they have discretion) and how they engage and communicate with the beneficiaries and a deceased member’s PRs
update these processes to reflect how the new regime will work

They also need to consider when and how to inform members and employees about this change

Related Resources

Pensions Commission

What’s changing?

The government has launched a new Pensions Commission. This will build on the Pensions Investment Review and the measures contained in the Pension Schemes Bill
As expected, the Commission will focus on the adequacy of pension savings and explore the barriers stopping people from saving enough for their retirement
The announcement also suggests that, as part of its work, the Commission will examine the gender pension gap and look 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 will 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 will be made up of Baroness Jeannie Drake (a member of the original Commission), Sir Ian Cheshire and Professor Nick Pearce who will be responsible for steering its work.
In an effort to repeat the success of the original Pension Commission in building a national consensus, they will work closely with stakeholders such as the Confederation of British Industry and the Trades Union Congress.
The Commission is due to issue its final report in 2027
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 will 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 Bill which is currently going through Parliament

What are the next steps?

The Commission will conduct its work over the next year or so with its final report due to be published in 2027

What should schemes and employers do now?

Look for 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) Bill which is currently going through Parliament. Much of the detail has been left to be set out in the implementing regulations

What are the next steps?

The National Insurance Contributions (Employer Pension Contributions) Bill is currently going through Parliament
The Bill will enable 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 has unveiled its 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
The proposed legal solution – contained in the Pension Schemes Bill - will enable 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 proposed legislation would allow 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. We hope that the way the legislation has been drafted gives actuaries sufficient flexibility to provide this (at least in most cases). The Financial Reporting Council (FRC) and Institute and Faculty of Actuaries (IFoA) are currently drafting guidance to assist actuaries who are asked to provide confirmations to validate historic amendments. This is likely to be published around the time the legislation comes into force
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 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 due to come into force when the Pension Schemes Bill receives Royal Assent. Therefore, subject to any changes as the Bill continues its passage through Parliament, it is likely to be available from Spring 2026
We hope that the guidance from the FRC and/or IFoA will be published to coincide with this
The judgment in Verity Trustees is expected to be issued in 2026

What should schemes and employers do now?

The legislation is still going through Parliament. It is sensible for schemes to take some preparatory steps such as those below. However, unless there is a pressing need to address concerns with historic deeds, we would expect most schemes to wait for the Bill to receive Royal Assent before taking significant action
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 will be able to make use of the proposed legal solution, once it is in force, to address any areas of uncertainty
Any trustees considering taking action based on these reviews - such as initiating legal proceedings or taking steps to reinstate any potentially invalid amendments - should speak to their legal advisers to consider whether this is still the right course of action. This is particularly important because actions taken by trustees may, in some circumstances, prevent them from being able to make use of the legal solution
Schemes that have adopted a ‘wait and see’ approach do not need to take any immediate action but, in due course, will need to 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 Bill 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 Bill 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, 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

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 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 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 also confirmed in the Budget that 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 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 expects these changes to come into force in 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 in 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?

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 and for the legislation on making direct payments out of surplus to members and beneficiaries
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

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.

Share this page