UK Pensions Law Update August 2025

Court applies "corrective" construction to pension scheme money purchase underpin rule

Facts

The High Court considered the interpretation of the Renishaw Pension Fund's money purchase underpin, which was introduced in 1992. The issue was whether a member's final salary pension should be compared to (i) the annual pension purchasable from their money purchase account or (ii) the total cash value of the money purchase account. The latter interpretation would be over ten times more valuable than the final salary pension for comparable service and would have increased the scheme's liabilities from £140 million to £1.6 billion.

Decision

The Court found that interpretation under point (i) was correct, and that the underpin should be the annual pension purchasable from their money purchase account.

This was possible because there was a clear drafting error that could be corrected with minimal amendments to the existing words on the page.

Interpretation (i) aligned with the scheme's practice since 1992 and avoided an irrationally generous benefit structure that exceeded HMRC benefit limits at the time. The correction was unopposed by the representative beneficiary.

Comment

This case is an example of the court's willingness to use "corrective" construction to resolve obvious drafting errors that would otherwise lead to unworkable outcomes.

It should be noted, however, that "corrective" construction is not always available - and some drafting errors might need to be addressed by applications for rectification (which can be successful if there is overwhelming evidence that the words on the page do not accord with the parties' intentions).

For more detail, please see here.

Death benefits

Outline

The cases of Mrs R, Mr T and Mrs E & Mr R all concern trustee decision making around death benefits.

In Mrs R, a complaint was brought by a member's mother regarding the trustees' decision to award all death benefits to the member's partner. The member's mother and former wife were also supported financially by the deceased at the date of death but received no benefits.

Similarly in Mrs E & Mr R, the complaint was brought by a late member's estranged spouse and son over the trustees' decision to award all death benefits to the member's cohabiting partner. The complaint stated that the trustees failed to properly consider the spouse and disabled son as eligible beneficiaries under the scheme rules.

In both cases, the Ombudsman found that the trustees had erred in their decision making around the distribution of death benefits. In Mrs R, the Ombudsman found the trustees failed to properly investigate whether the mother or former wife qualified as dependants. The trustees were directed to reconsider the distribution of death benefits, disregarding payments already made. In Mrs E & Mr R, the Ombudsman found the trustees' process flawed in both the original decision and review. While the cohabiting partner was correctly identified as a potential beneficiary, the spouse and son were incorrectly discounted as potential recipients. The trustees were directed to reconsider the distribution and pay £500 each to the complainants for distress.

Contrast these cases with the case of Mr T, where the Ombudsman dismissed a complaint by a late member's civil partner over the administrator's decision not to award him SIPP death benefits. The member had become estranged from the civil partner and nominated a friend's daughter as beneficiary after their relationship broke down. The civil partnership was, however, never formally dissolved. After the member's intestate death in 2019, the civil partner therefore inherited the estate. The administrator decided no SIPP benefits were due, citing adequate financial provision for the civil partner and no dependency. Here, the Ombudsman found no maladministration, finding that the administrator had properly exercised its discretion and considered relevant factors. The decision was reasonable, and the £150 compensation offered by the administrator for misleading correspondence was deemed appropriate.

Comment

These cases show the importance of careful decision making on a case-by-case basis, ensuring that (i) all potential recipients of death benefits are correctly identified (ii) all relevant factors (including e.g. dependency on the deceased) are considered and (iii) the award is not influenced by extraneous factors.

For more detail on these cases, please see here, here and here.

Discretionary increases

Outline

The cases of Mr N and Mr Y both illustrate the Ombudsman's approach to member complaints where an employer has not awarded discretionary pension increases. 

Mr N concerned an employer's refusal to award discretionary increases on pre-1997 benefits. In Mr N's case, the employer's refusal was centred on the funding position of the scheme and the affordability of the additional contributions that would have been required to fund the increases.

Mr Y involved a complaint against the employer's decision not to request discretionary pension increases above 5% in 2022, despite higher RPI rates. The scheme rules allowed for such increases if requested by the employer, which was required to "have regard" to the scheme's finances and a stated aim to provide RPI-linked increases, capped at 10%.

In both cases, the complaints were dismissed as there was no requirement to provide the requested increases under the scheme's rules. Both employers acted reasonably and within the scheme rules, appropriately considering their scheme's (and their own) finances in their decision-making process.

In Mr N, a claim for linked discrimination failed as he failed to demonstrate he was treated less favourably than other comparable members.

In Mr Y, the Ombudsman held that the employer had not breached its implied duty of good faith, as it was entitled to consider its own interests when exercising a non-fiduciary discretionary power. The employer was found to have taken proper account of the aim of providing up to 10% annual increases but was entitled to prefer its own financial interests when making the decision.

Comment

These cases demonstrate the importance of both employers and trustees following the correct decision-making process.

In both cases, it was crucial that the employer was able to demonstrate that it had considered the facts carefully and its decision-making process was robust.

For further detail on the cases, please see here and here.

Pension Schemes Bill 2025 - Key Updates

DB Superfunds

Outline

The Pension Schemes Bill 2025 (the Bill) introduces a statutory framework for the authorisation and supervision of defined benefit (DB) superfunds, which will replace the interim non-statutory regime currently operated by the Pensions Regulator (TPR). Superfunds are, broadly, consolidation vehicles that allow sponsoring employers to sever their liabilities to DB schemes, transferring assets and liabilities to a consolidator scheme supported by a capital buffer.

Much of the detail will be contained in DWP regulations (not yet published) - with the new regime not expected to come into force until early 2028.

Key features of the new regime include the following:

(1) Authorisation: Superfunds will need to meet stringent requirements, including as regards governance and operational policies, to gain and maintain authorisation from TPR.

(2) Transfers: DB scheme transfers into superfunds will require regulatory approval, contingent on meeting specified "onboarding conditions".

(3) Ongoing Supervision: Superfunds will be subject to rigorous monitoring, including as to capital adequacy and governance requirements, with intervention powers granted to TPR in cases of non-compliance.

Comment

The Bill marks a significant step in formalising the regulatory landscape for DB superfunds - albeit we are quite some way off the new regime taking effect. We expect to see an increasing amount of activity in the DB superfund space in the interim (and noting the recent superfund transfers to Clara Pensions). 

Return of surplus to the employer

Outline

The Bill introduces legislative changes designed to address concerns that the current framework governing the release of surplus from ongoing defined benefit schemes is overly restrictive, preventing employers from unlocking funds that could be reinvested in their businesses. The changes proposed provide for a revised surplus release certification regime to be implemented via secondary legislation and the government has provided an indication as to the likely shape of that regime in its response to the  "Options for Defined Benefit Schemes" (2024) consultation.

Comment

The proposed reforms represent a pragmatic shift in the regulation of surplus returns, balancing the need for greater flexibility with the protection of member interests. The changes are likely to make surplus returns more accessible to more employers, but trustees will need to think very carefully about how they discharge their fiduciary duties when considering surplus return requests.

These new provisions are not scheduled to be in force until the end of 2027, and any direct refund of surplus will be taxed. Trustees and employers may therefore wish to consider how best to use surplus on a tax efficient basis within the existing legislative regime.

Value for Money (VfM) Assessments

Outline

The Bill gives the DWP power to introduce a VfM framework for trust-based DC schemes, focusing on long-term value over short-term costs. Schemes within the scope (to be clarified in the regulations) will be required to publish their VfM assessments setting out the VfM rating, and metric data such as service quality, asset allocation, investment performance, costs incurred by the schemes, and charges on members and employers. Regulations will provide TPR with compliance and enforcement powers relating to the VfM framework.

Comment

The DWP indicates that the first VfM assessments are unlikely to apply until 2028, but trustees and providers should monitor any forthcoming regulations which are expected to clarify the scope of, and requirements for, DC schemes which will be subject to the VfM framework.

Consolidation of small dormant pension pots

Outline

The Bill includes provision for a default consolidator model for small DC pension pots. Following recommendations from the Small Pots Delivery Group, the government will also conduct a Digital Systems Feasibility Review, led by the Pensions and Lifetime Savings Association, to explore the required infrastructure. Draft regulations will follow Royal Assent, with implementation from 2027/28 and duties on schemes starting in 2030.

Comment

This reform aims to tackle the long-standing issue of small DC pension pots with small pots transferred to a handful of approved "consolidator" schemes. The phased timeline reflects the need for robust digital systems for implementation. Trustees and administrators should prepare for significant operational changes and monitor developments closely.

Default decumulation options

Outline

The Bill introduces a new statutory duty for trustees of Defined Contribution (DC) trust-based pension schemes to design and offer one or more "default pension benefit solutions" (default solutions) for members at the point of retirement. These requirements also apply to master trusts, with the Financial Conduct Authority (FCA) introducing similar rules for group personal pension plans (GPPPs) and other contract-based arrangements by 2028.

Key provisions include a requirement for trustees to provide default decumulation options for members who do not make an active choice, ensuring they are automatically placed into a suitable option. Trustees must also develop a "pension benefits strategy" to assess member needs, design appropriate solutions, and provide clear, plain-language communications about the options available. Where in-scheme solutions are impracticable or unsuitable, trustees must identify and facilitate transfers to external schemes offering qualifying default solutions, subject to member consent. TPR can impose fines of up to £100,000 for non-compliance, and trustees must periodically review the suitability of their default solutions.

Comment

These provisions are aimed at combating various perceived challenges with the current UK pension system, including low member engagement, inconsistent access to decumulation options, and poor retirement outcomes. We await guidance on what exactly will be expected from trustees under these new rules as much will be set out in regulations.

These duties are expected to be fully implemented by 2027.

DC Consolidation

Outline

The Bill introduces significant measures aimed at promoting consolidation in the defined contribution (DC) pension market.

Scale Requirement

A new "scale requirement" will apply to relevant master trusts and GPPPs. To meet the quality requirement for auto-enrolment (and to be able to be used by employers for auto-enrolment), these schemes must either (unless exempt):

• Operate a "main scale default arrangement" (MSDA) with minimum assets of £25 billion, or

• Qualify for transition pathway or new entrant pathway relief.

• Transition Pathway Relief: Available for schemes with £10 billion in assets and which can demonstrate a robust plan to reach £25 billion by 2035.

• New Entrant Pathway Relief: Available for schemes with strong growth potential and innovative capabilities, subject to conditions which will be specified in regulations.

Asset Allocation Requirements

TPR will have the power to impose mandatory investment targets for productive assets, such as private equity, venture capital, and interests in land. The government has indicated that this power will not be exercised immediately, pending voluntary adoption of productive asset investment (such as through the Mansion House accord).

Changes to Master Trust Authorisation

The authorisation requirements for master trusts will be updated to include:

• Demonstrating "sufficient investment capability" to manage investment strategies and governance effectively.

• Compliance with the scale requirement for MSDAs (unless exempt or subject to the transition pathway or new entrant pathway relief).

Contractual Override for FCA-Regulated Pension Schemes

The Bill introduces a contractual override mechanism to facilitate consolidation in FCA-regulated pension schemes. This measure aims to level the playing field with trust-based schemes, which already can make bulk transfers without member consent.

Commencement

The scale requirements are expected to come into effect from 2030, with the asset allocation power subject to a "sunset" provision meaning that the power set mandatory investment targets will expire in 2035 if it is unused. The contractual override for FCA regulated pension schemes is expected to come into force in 2028.

Comment

The DC consolidation measures reflect the government's ambition to create larger, more efficient pension schemes capable of delivering better outcomes for members and supporting economic growth. The £25 billion threshold for MSDAs is likely to drive consolidation in the DC market - and we expect to see consolidation ahead of the requirement coming into force in 2030. There is an exemption to allow new entrants into the marketplace, but the expectation to reach scale may still make it difficult to enter the DC pensions market.

The asset allocation requirement signals a clear policy direction towards channelling pension investments into productive assets. This aligns with broader government initiatives, such as the Mansion House Accord, and the Government will monitor voluntary progress in productive asset investment before deciding whether to enforce asset allocation. But it raises questions about the balance between regulatory intervention, market-driven solutions, and trustee fiduciary duties on investment. In short, benefiting the wider economy will not always be consistent with pension scheme members benefits. Striking an appropriate balance will be critical.

Legislation, Government and Guidance Updates

Financial services regulatory initiatives grid: pensions aspects

Outline

The Financial Services Regulatory Initiatives Forum (which includes the Financial Conduct Authority (FCA), Bank of England, Prudential Regulation Authority (PRA), Pensions Regulator (TPR) and HM Revenue & Customs (HMRC) publishes a Regulatory Initiatives Grid - outlining the areas of focus for regulators - twice a year. Due to the election and change of Government, the Grid published in April 2025 was the first full update since November 2023.

There are four new pensions-specific initiatives:

• Consideration of whether the FCA needs to adapt to a changing market: a discussion paper was issued in 2024 exploring how the regulatory framework may need to evolve to better support consumers such as the use of tools and modellers to aid decision making on decumulation.

• TPR data quality regulatory initiative: TPR has been targeting schemes that it believes are failing in the expectations of data quality, to drive action in a timely manner ahead of dashboard duties coming into force.

• TPR is looking to consult on a draft Code of Practice for collective defined contribution schemes towards the end of this year.

• TPR anticipates beginning work on the DB Superfund Code of Practice from early 2026 (with the Bill containing legislation for the regulation of Superfunds).

Comment

These new initiatives follow on from familiar recent themes in pensions. Interestingly, TPR's work on a new Code of Practice for the revised notifiable events regime has ceased - indicating that the changes enacted in the Pension Schemes Act 2021 will not be brought into force.

UK pension providers sign Mansion House Accord

Outline

On 13 May 2025, the Association of British Insurers (ABI), City of London Corporation, and Pensions and Lifetime Savings Association (since renamed 'Pensions UK') announced that 17 UK pension providers have signed the "Mansion House Accord". This voluntary and non-binding initiative aims to achieve a minimum 10% allocation to private markets within the main default funds of defined contribution (DC) pension schemes by 2030. Of this, at least 5% is to be allocated specifically to UK private markets.

Private markets, as defined by the Accord, include equities, property, infrastructure, and debt or credit. Investments qualify as UK private markets where the underlying assets are based in the UK.

The Mansion House Accord builds on the earlier Mansion House Compact of July 2023, which set a 5% allocation target to unlisted equities by 2030. Signatories to the Accord include major providers such as Aegon UK, Aviva, Legal & General, NatWest Cushon, NEST, Smart Pension, the People's Pension and USS. The ABI has clarified that the Accord complements, rather than replaces, the Compact.

The Accord's ambitions are explicitly subject to providers' fiduciary duties, the FCA's consumer duty, and Government support. The Government has committed to facilitating a pipeline of UK investment opportunities and implementing its new value for money framework, which is included in the Pension Schemes Bill. Additionally, the Accord calls for the delivery of proposed changes to bulk transfer rules and aligning the scope of the charge cap.

Comment

The Mansion House Accord represents a significant step in aligning DC pension schemes with broader economic and policy objectives and has the potential to transfer the UK's investment ecosystem. However, its success hinges on several factors, including the Government's ability to deliver investment opportunities.

The Accord is voluntary, and there is a tension between (i) fiduciary duties and the FCA consumer duty on the one-hand and (ii) the policy-driven investment goal of the Accord on the other. It remains to be seen the extent to which the signatories will achieve targets set in the Accord - but the Government has included power in the Pension Schemes Bill for mandatory investment targets to be set if the Accord is not enough to encourage investment productive finance or in UK investments.

See also our publication on the new Accord: Welcoming the Mansion House Accord: a new era for UK investment | Simmons & Simmons

Pensions dashboards: TPR publishes short films

Outline

TPR has released four short films which aim to encourage trustees to take action to prepare for dashboard connection. TPR has also set out five actions that it wants trustees to prioritise to help them to become "dashboard ready", including: (i) ensuring data is accurate, accessible, and digital (ii) using the Regulator's checklist (iii) nominating a dashboards contact on TPR's portal, (iv) working closely with service providers to the scheme and (v) maintaining oversight of preparations.

Comment

TPR's focus on dashboards highlights their potential to transform saver engagement but also exposes the challenge of ensuring data quality. Trustees should act swiftly to ensure that they are "dashboard ready", leveraging the Regulator's guidance and collaborating with administrators to meet compliance standards. This initiative reflects the growing push for digital transformation in pensions. For further detail, please see here.

Pensions dashboards: PDP progress update report

Outline

In May, the Pensions Dashboards Programme (PDP) published a progress update report on pensions dashboards. By then, four volunteer participants had connected to the live dashboard ecosystem, with others in testing. The PDP is confident all schemes will connect by the 31 October 2026 deadline. Finalised standards for schemes were approved in March 2025. Consumer testing begins in Summer 2025, and work on private sector dashboards continues.

Comment

The PDP's progress report reflects steady advancements in the dashboard's ecosystem, though delays in connection highlight the complexity of the process. The commitment to collaboration and phased testing is encouraging, but schemes must remain proactive to meet the regulatory deadline. The evolving standards and development of private sector dashboards signal a dynamic regulatory environment, requiring schemes and providers to stay adaptable.

It is interesting to note that the PDP appears more confident at this stage of schemes' "dashboard readiness" than TPR - see the next item below.

TPR publishes dashboards readiness survey

Outline

In July, TPR published findings from its Dashboards Readiness Tracker, surveying schemes with "connect by" dates between April 2025 and February 2026. While 72% had completed or planned key actions and 80% expected to connect on time, challenges remain, including non-digital data and incomplete DB value data. Only 42% of schemes with separate AVC providers had discussed preparations.

Comment

The survey highlights progress in dashboard preparations but underscores significant data quality issues, particularly for DB schemes and AVC arrangements. Trustees must prioritise collaboration with administrators and providers to address these gaps and ensure compliance. The findings reinforce the importance of early action to meet dashboard requirements effectively.

Pensions dashboards: PASA publishes guidance on connecting split administration

Outline

In May, PASA's Dashboards Working Group issued guidance for schemes with split administration on connecting to the pensions dashboard. Schemes with multiple administrators or AVC providers may face challenges meeting the requirement to connect all parts simultaneously. The guidance clarifies that breaches occur if providers fail to connect on the same date but advises that regulators will take a pragmatic approach. TPR and the FCA will not consider such breaches materially significant if prompt action is taken to connect remaining sections by 31 October 2026.

Comment

PASA's guidance provides clarity for schemes with split administration, addressing practical challenges in meeting connection requirements. TPR's current pragmatic stance offers reassurance, but schemes must act swiftly to resolve delays and ensure compliance by the deadline. This highlights the importance of proactive coordination between administrators and providers. For further detail, please see here.

TPR Guidance on defined benefit "endgame" planning

Outline

In June, TPR issued guidance for trustees of DB and hybrid schemes on endgame planning. The guidance acknowledges the significant improvement in DB scheme funding levels and the emergence of new market solutions. The guidance is supplemented by case studies illustrating practical applications of these options. Additionally, TPR has published a separate document summarising feedback from its informal pre-publication consultation with industry stakeholders.

Comment

TPR's guidance is a useful step in supporting trustees as they navigate the increasingly complex landscape of defined benefit scheme endgame planning. By outlining a broad spectrum of options, the guidance acknowledges the diversity of scheme circumstances and the need for tailored solutions. The inclusion of case studies provides helpful practical insights, while the focus on surplus extraction aligns with the government's ongoing legislative reforms.

Virgin Media - Government's plan to legislate to remedy uncertainty

Outline

The DWP has announced plans to introduce legislation addressing uncertainty caused by the Virgin Media case, which held that benefit amendments to contracted-out salary-related schemes are void if they failed to obtain the written actuarial confirmation required by legislation at the time (often in the form of a "section 37 certificate"). The proposed legislation will allow schemes to retrospectively obtain this actuarial confirmation that the historic benefit changes met the necessary standards.

Comment

The DWP's announcement is welcoming news for sponsors and trustees of DB schemes which have been affected by the Virgin Media judgment. However, it remains to be seen as to what is required from the scheme actuary to provide the retrospective confirmation - it is to be hoped that the Government will take a pragmatic approach. We anticipate more detail will be set out in the draft legislation when it is available.

TPR speech on the changing nature of trusteeship

Outline

In the context of an evolving pensions landscape, TPR has announced that it intends to launch a new strategy outlining how it will seek to bring trusteeship standards into line with other professions and corporate governance standards. TPR is also actively considering how it can reduce un-necessary regulatory load, and it is planning to collaborate with the Government on a consultation on trusteeship and governance later this year.

Comment

Notwithstanding TPR's aim of "reducing unnecessary regulatory load", the introduction of measures intended to enhance trustee professionalism and accountability could ultimately do just the opposite. We encourage trustees and employers alike to engage actively with the forthcoming consultation.

Revised policy on employer recovery of input VAT on pension fund management costs

Outline

On 18 June 2025, HMRC published Revenue and Customs Brief 4 (2025), announcing a change in its policy on input VAT recovery for pension fund management costs. Under the new policy, employers can claim all input VAT incurred on investment costs without the need for apportionment between the employer and pension fund trustees. This marks a departure from the previous "dual use" approach, where VAT recovery required a fair and reasonable apportionment. Additionally, VAT-registered pension trustees supplying pension fund management services to employers can also deduct input VAT incurred for providing those services, subject to normal deduction rules.

The policy applies from 18 June 2025, with updated guidance expected by Autumn 2025.

Comment

Whilst HMRC's revised policy should be a welcome development for employers (due to simplification and increased scope for recoverability), uncertainties remain. It is not currently clear how HMRC will apply the rules in practice as well as the position as regards back claims. The forthcoming guidance promised by HMRC will therefore be important.

Draft Finance Bill 2026: inheritance tax to catch unused pension funds and death benefits

Outline

In July, the Government released draft legislation as part of the 2026 Finance Bill proposing that, from 6 April 2027, most unused pension funds and pension death benefits will be included in a deceased individual's estate for inheritance tax (IHT) purposes. Personal representatives, rather than pension scheme administrators, will be responsible for reporting and paying IHT on unused pension funds and death benefits. Scheme administrators will, however, need to provide the value of these funds to PRs within four weeks of being notified of the member's death. Death in service benefits however, whether from discretionary or non-discretionary registered pension schemes, will be excluded from IHT.

Comment

These revised plans appear much more workable than the previous iteration of this legislation - the move away from the original plans of having pension scheme administrators be responsible for paying inheritance tax in all cases is welcome given the administrative burden this would have caused. The requirement to provide the values of these funds within 4 weeks of death and paying the tax due if the beneficiaries so direct, will however still lead to increased pressure on scheme administrators.

Savers may need to reconsider how they plan their pension spending to minimise the tax burden. Employers may also wish to consider whether to restructure their current benefit provision to ensure optimal tax efficiency.

Pensions Regulator Determinations Panel authorises trustee to modify scheme rules to enable return of trapped surplus to employer on winding-up

Outline

In June, the Determinations Panel authorised the trustee of the Littlewoods Pension Scheme to modify its rules under section 69(1) of the Pensions Act 1995, to allow surplus assets on winding-up to be returned to the employer. The Panel's decision was based on the surplus arising from employer contributions after full funding on a technical provisions' basis and a lack of feasible alternatives without undue cost. This marks the first reported use of the Panel's section 69(1) powers.

Comment

This determination sets a significant precedent, demonstrating the Panel's willingness to intervene where scheme rules prevent the fair distribution of surplus. Trustees should consider this case when assessing options for surplus distribution on winding-up. For further detail, please see here.

UK Pensions Horizon Scanning

A reminder of key upcoming developments in the UK pensions space

2025 Developments

2026 onwards