Government to legislate to help with Virgin Media issues
The government has announced that it will legislate to help schemes dealing with uncertainty following the Virgin Media decision (which held that certain amendments made by schemes that were contracted-out on a section 9(2B) basis between 1997 and 2016 are void unless a necessary actuarial confirmation was provided). The only detail given is that legislation will ‘give affected pension schemes the ability to retrospectively obtain written actuarial confirmation that historic benefit changes met the necessary standards’. No information on timing of the legislation has yet been published.
Read the announcement.
Pension Schemes Bill published
The Pension Schemes Bill 2025 has been published. The majority of issues covered had been trailed in previous announcements, in particular in the recent Pensions Investment Review Report and DB Options consultation response. Much of the detail remains to be seen in subsequent legislation.
Alongside the Bill, the government has released a ‘workplace pensions roadmap’, setting out a broad timeline for bringing the variety of changes into force. The roadmap suggests that the aim is for the Bill to be given Royal Assent at the start of 2026 but states that all timings are ‘very much indicative and subject to Parliamentary time where required’ and the ‘key takeaway’ should be the sequencing rather than the precise timing.
Releasing defined benefit (DB) surplus
As announced last week, the Bill includes changes intended to allow DB scheme surpluses to be paid out to employers. Currently, only DB schemes which passed a resolution (a ‘section 251 resolution’) by April 2016 to preserve a power to access surplus are able to do so while the scheme is ongoing. The draft provisions remove the need for a section 251 resolution (though section 251 resolutions that were passed remain valid). They also introduce a new power allowing trustees to amend a scheme by resolution to: (a) introduce a trustee power to make payments to the employer where there is currently no power; and (b) where there is a power for trustees to make payments to the employer, remove or relax any restriction imposed by the scheme on the exercise of that power. This new power does not apply to a scheme being wound up and other exceptions may be included in regulations.
The Bill also replaces current conditions on paying out surpluses to employers with new conditions to be set out in regulations. Most notably, the Bill removes the express requirement for trustees to be satisfied that payment is in the interests of members (this is on the basis that overriding fiduciary duties apply in any event) and the need for a written valuation of the scheme’s assets and liabilities. An actuarial certificate confirming that the (new) relevant conditions have been met will still be required and members will still need to be notified before a payment is made. The Bill also provides that employer consent to the payment may continue to be required. The government announced in its DB Options consultation response that it is ‘minded’ to allow payment of surplus above a low dependency basis, but this will be consulted on when draft regulations are released.
The roadmap suggests that the surplus regulations and guidance will come into force by the end of 2027.
Value for Money in defined contribution (DC) schemes
The Bill lays the groundwork for regulations to set out a Value for Money (VFM) framework for relevant DC schemes/arrangements. Although the detail is left to the regulations, the Bill indicates that many of the expected proposals for the framework will be included, such as requirements to: complete and publish VFM assessments, which will be notified to TPR; publish VFM data for comparison by other schemes; award schemes a VFM rating, with actions required where the rating is not ‘fully delivering’ (which may include a requirement to transfer members to another scheme/arrangement); and to carry out member satisfaction surveys. The roadmap indicates that the regulations process will be completed over 2026/27 and the first VFM assessment will take place in 2028.
DC scale, consolidation and asset allocation
As set out in the Pensions Investment Review Report, the Bill introduces a requirement that master trusts and GPP providers being used for auto-enrolment must have a ‘main scale default arrangement’ (or ‘megafund’) with a minimum level of assets under management (AUM) of GBP25 billion by 2030. This will be subject to exceptions to be set out in regulations and there will be a ‘transition pathway’ for providers or master trusts that have GBP10bn in AUM in their main scale default arrangement by 2030, if they have a credible plan to reach GBP25bn by 2035 and meet other conditions, as well as a ‘new entrant pathway’ for innovative products and for collective DC schemes.
The Bill enables regulations to secure that small (GBP1,000 or less), dormant DC pension pots held by auto-enrolment schemes are held in a consolidator scheme (a Master Trust authorised by TPR to act as a consolidator or an FCA-regulated scheme authorised for this purpose by the FCA). A pot will be considered dormant if no contributions have been paid into it for a period to be set out in the regulations (at least 12 months) and the saver has taken no steps to confirm or alter how the pot is invested.
Regulations will require a ‘small pots data platform’ to direct schemes on which consolidator to send a pot to. Schemes must notify members of the proposed consolidation and transfer the pot where the member does not respond (or transfer it in accordance with the member’s instructions, where they are given). Transfers must be made within a year of the pot becoming dormant (though schemes will be given a year from the regulations coming into force for initial transfers), unless regulations extend this. Regulations may require schemes to improve the accuracy and completeness of their data to ensure consolidation can take place effectively and may require payment of compensation to an individual who suffers a loss as a result of breach of the regulations. The small pots requirements will come into force after the megafund requirements set out above, to prevent members being moved around more than is necessary; this is anticipated to be in 2030 (with consultation over 2027/28).
The Bill also includes provisions to enable FCA-regulated pension providers to transfer a saver’s pension to another arrangement or provider, or to vary contractual terms, without the individual member’s consent and notwithstanding the terms of the scheme, when doing so is in the best interests of the member. The provider must reasonably conclude that the change is reasonably likely to achieve a better outcome for the directly affected members and no worse outcome for other members and an independent person must review the change and provide a certificate confirming that this test and other requirements have been met. Affected members must be notified of the change.
In relation to asset allocation, the Bill includes a power for the government to impose a mandatory minimum level of default fund assets invested in ‘qualifying assets’ (which could include private equity, private debt or venture capital and may need to be located or linked to the UK) for master trusts and GPP providers being used for auto-enrolment. The roadmap states that this power is intended to be used ‘if, and only if, industry change does not take place as envisaged by the Mansion House Accord. This power will be a “last resort” power, with clear safeguards to protect savers’ interests.’ The Bill requires the secretary of state to publish a report setting out how the financial interests of members and economic growth would be affected, before using this power. The secretary of state must also publish a review of the effects of any regulations utilising this power within five years of them coming into force.
DC decumulation
Occupational DC schemes will be required to provide members with one or more default decumulation solutions (‘guided retirement products’), designed to provide a regular income in retirement. Regulations on these guided retirement products are expected over 2026/27, to take effect in 2027.
In deciding what solution a scheme should make available, the trustees/managers must take account of factors including the needs and interests of the scheme’s membership and the circumstances of different members. Trustees/managers will be required to publish a ‘pension benefits strategy’ setting out steps to ensure that they understand the requirements of eligible members and their default solution(s) take account of those needs.
Where it is not practicable for a scheme to make a default solution available and a solution in another scheme has been identified which the trustees/managers consider will provide a better outcome, they may transfer the pension with the member’s consent. The Bill sets out information required to be given to members about the default solutions, with more detail to be set out in regulations. It also flags the possibility that regulations could require schemes to monitor the rate of decumulation by members and inform a member if they consider that the rate of decumulation should be reviewed.
DB superfunds
The Bill sets out a regulatory framework for DB superfunds (DB occupational pension schemes that receive assets and liabilities from closed defined benefit occupational pension schemes, and are supported by a third-party capital buffer provided by investors instead of an employer covenant). This will replace TPR’s interim supervisory regime currently operating for these schemes. The Bill sets out requirements for authorisation of superfunds and ongoing requirements. A consultation is expected in 2026, with regulations to come into force in 2028.
PPF changes
As promised, the Bill includes provisions to remove restrictions that prevent the Board of the PPF from reducing the annual pension protection levy and being able to raise it again within a reasonable timeframe. It also includes provisions to enable PPF compensation data to be made available on pension dashboards and allows the PPF to make lump sum payments to members with a life expectancy of up to 12 months, increased from six months.
The PPF has commented on the Bill, saying it will take a final decision on the calculation of the 2025/26 levy (which it had signalled it may reduce to zero if the necessary legislative changes were sufficiently progressed) in due course and does not plan to proceed with invoicing until it has done so. It expects to provide a further update to schemes by the end of July. The roadmap suggests that any substantial changes to the levy will come into force for the financial year that begins after Royal Assent (i.e. from April 2027).
TPO as a ‘competent court’
Amendments are included which restore the ‘original policy intent’ that the Pensions Ombudsman (TPO) should be regarded as a competent court for certain pension complaints. This will remove the need for pension schemes to apply to the County Court to enforce the recovery of an overpayment following a TPO decision.
Local Government Pension Scheme (LGPS)
The Bill also includes changes to asset pooling, investment and governance in the LGPS, intended to ensure that the management of LGPS investments ‘delivers the full benefits of scale’ and identifies local opportunities for investment.
Other upcoming developments
The roadmap also includes reminders of other developments to expect. It mentions the government’s plan to consult on measures to improve the governance of trust-based schemes later this year, which The Pension Regulator’s CEO set out in more detail in a speech. It also refers to regulations to allow multiple unconnected employers to establish a CDC scheme, expected to come into force in the autumn.
Read the Bill, the government’s press release and the roadmap.
TPR end-game guidance
The TPR has published new guidance for DB and hybrid schemes, discussing a range of options for endgame planning.
The guidance includes actions expected to be taken when considering all options, for example seeking appropriate advice, considering employer covenant and managing conflicts of interest. It also sets out factors to consider when comparing options, such as cost/benefit, member service and ESG considerations. Prominence is given to the option of running on a scheme, either as a preferred strategy or an interim strategy to achieve a later goal, such as buy-in or buy-out. The guidance sets out a range of issues and potential benefits of running on, including the potential to provide additional discretionary benefits to members and to share surplus with employers.
It includes a separate section on issues to consider in respect of surplus. Following the DB Options consultation response, which set out upcoming changes to allow access to surplus now included in the Pension Schemes Bill discussed above, TPR suggests that it would be good governance practice for trustees to develop a policy on surplus extraction (appropriate to their scheme-specific context), in collaboration with the scheme sponsor, and to consider at what level surplus could be extracted (potentially including a buffer above the level set in regulations). TPR notes that ‘in situations in which the scheme is likely to remain fully funded on a low dependency basis and there is no realistic risk of employer insolvency, it is unlikely that TPR would have reservations about the release, subject to you having considered any other relevant matter’. Once the new legislation is enacted, TPR will consult and publish guidance on further factors to consider when releasing surplus.
The guidance then sets out the following alternative options, with issues to consider and case studies for each: fiduciary management, appointing accredited professional trustees/a sole trustee (note: TPR expects that only professional trustees with accreditation would be considered for appointment), DB master trusts and multi trusts, capital-backed arrangements, superfunds, longevity insurance, buy-ins and buy-outs.
Read the guidance and TPR’s accompanying blog post.
TPR uses power to authorise surplus payment to employer
TPR has agreed to make an order authorising the trustee of the Littlewoods Pension Scheme (a DB scheme) to modify the scheme to enable surplus assets remaining after wind-up to be paid to the employer.
The scheme entered into winding-up in October 2021 and completed a buy-out in 2023. All liabilities had been fully discharged, some benefit enhancements had been agreed, all costs were met and winding-up insurances were in place. There was an anticipated remaining surplus of GBP10—12 million.
The trustee was not able to distribute the surplus assets under the scheme rules without the principal employer’s consent, which the principal employer confirmed it would not give. The insurers confirmed that using the surplus to increase benefits under the buy-out contracts was not possible. The trustee considered whether it could pay the assets out on the basis of a resulting trust, in favour of the originator(s) of the surplus funds, but this would be practically very difficult. The trustee applied to TPR to use its powers under section 69(1) of the Pensions Act 1995 to enable these remaining assets to be distributed to the employer.
TPR found that the test for using its power had been met: that the purposes for which the order was to be made cannot be achieved otherwise, or can only be achieved in accordance with a procedure that is liable to be unduly complex or protracted or involves the obtaining of consents that cannot be obtained or can only be obtained with undue delay or difficulty. It also found that it was reasonable to grant the order, taking into account in particular that the surplus appears to have arisen because the principal employer continued paying contributions after it was required to; member benefits had been insured in full and enhanced; insurance policies and a guarantee from the principal employer were in place; the trustee properly considered alternatives; and the amount of the surplus meant that any augmentation would lead to only a small increase to members’ benefits.
Read the determination notice.
Revised UK stewardship code
The Financial Reporting Council (FRC) has published a revised UK Stewardship Code following consultation with stakeholders. The revised Code takes effect from January 1, 2026. Among other changes, the Code now includes dedicated principles for different types of signatories, including asset owners, asset managers, and for the first time, specific principles for proxy advisors, investment consultants, and engagement service providers.
Read the UK Stewardship Code 2026, summary document, feedback statement and press release.
