Autumn budget—pensions announcements
The autumn Budget included a number of announcements relevant to pension schemes and their employers, from National Insurance contributions on salary sacrifice pension contributions over GBP2,000, to easier payment of surplus directly to members, and changes to processes where pension benefits are subject to inheritance tax (IHT).
What’s changing for salary sacrifice pension contributions?
The headline change was the introduction of an annual GBP2,000 cap on the amount of pension contributions that are exempt from National Insurance Contributions (NICs) through salary sacrifice. Salary sacrifice allows employers to agree to reduce an employee’s salary in return for a benefit, which can include increased employer pension contributions. Currently, no employment income tax or NICs are paid on those contributions.
Under the Budget proposals, from April 6, 2029 employer and employee NICs will apply to contributions made via salary sacrifice in excess of GBP2,000 a year. Non-sacrifice employer contributions will continue to be free of NICs. All contributions through salary sacrifice will remain eligible for relief from income tax (subject to the usual limits).
Employers will want to consider how they react to the increased cost of salary sacrifice contributions (see our Alert for some initial points to keep in mind). HMRC’s new Pension Schemes Newsletter notes that HMRC will consult on the design and operability of the cap, with a National Insurance Bill to follow in due course.
What did the Budget say about surpluses?
From April 2027, it will be possible to make payments from scheme surpluses directly to members, making it easier for trustees and employers to agree packages of measures under the government’s plans to allow extraction of surplus from defined benefit (DB) schemes. The Budget states that such payments will be possible in relation to scheme members over the normal minimum pension age, where scheme rules and trustees permit it.
HMRC’s post-Budget Pension Schemes Newsletter explains that these payments will be treated as authorised payments and taxed as pension income at the individual’s marginal rate of tax. It also notes that, for these payments to be made, schemes must be in surplus on the same funding basis as applies to payments to employers (currently this is the buy-out basis, but this is expected to be changed to the low dependency basis in upcoming regulations).
What about IHT on pensions and death benefits?
In relation to the government’s previously announced proposals to bring pensions into scope of IHT, the Budget suggests that some concerns around the burden being placed on personal representatives (PRs) are being addressed. PRs will be able to direct pension scheme administrators to withhold 50% of taxable benefits for up to 15 months and pay IHT due in certain circumstances, and will be discharged from any liability for payment of IHT on pensions discovered after they have received clearance from HMRC. The changes are covered in new HMRC guidance and its Pension Schemes Newsletter. They will be legislated for (together with further post-consultation amendments) in the Finance Bill 2025—26 and take effect from April 6, 2027.
What else did the Budget say on pensions?
The Budget announced a change in compensation provided under the PPF and FAS from January 1, 2027, to provide CPI-linked increases, capped at 2.5% a year, on pre-1997 pension accruals where members’ former schemes provided it. Other announcements included enabling unconnected, multiple employer collective money purchase (also known as collective defined contribution/CDC) schemes to apply to HMRC to become registered pension schemes, with a regulation-making power to allow HMRC to legislate for those schemes more efficiently in the future. This follows the recent draft regulations and consultation on allowing unconnected multiple employer and retirement CDC schemes. The government also committed to the triple lock on state pensions for the duration of this Parliament.
HMRC’s Newsletter warns of the risk of companies using the Budget as a ploy to market schemes that claim to allow individuals early access to their pensions to reduce their tax bill and/or reduce their exposure to the changes.
Read our Budget Alert, the Budget document, guidance on NICs on salary sacrifice contributions, guidance on HMRC registration of collective money purchase schemes and HMRC’s Newsletter.
High court rules on meaning of "accrued rights or interests […] already provided"
The High Court has found that a restriction in an amendment power which stated that no modification could be made if it would: "diminish any pension already being paid under the Plan or the accrued rights or interests of any Member or other person in respect of benefits already provided under the Plan" did not prevent closure to future accrual: 3i Plc v Decesare and Others.
The plan was purportedly closed to accrual in 2011 but preserved a final salary link for past service. Following the Court of Appeal’s decision in BBC v BBC Pension Trust Ltd, which held that the word "interests" in a restriction to an amendment power covered future service benefits, the 3i trustees sought confirmation that their fetter did not have the same effect and that the closure to accrual had been valid. This was in the context of the scheme preparing to wind up and pay out a surplus to the employer.
The judge held that the fetter in the 3i Plan is concerned with accrued, past-service benefits (including the final salary link for past service) and not with future accrual. Reading the wording naturally and grammatically, "accrued" qualified both "rights" and "interests", and both were further confined by the backward-looking phrase "in respect of benefits already provided under the Plan". This was different from the "untethered" formulation in the BBC case, in which the word "interests" was not restricted.
The judge rejected the argument that non-uniform accrual (under the Plan’s historical benefit design) created an "interest" in future service. The court accepted that using both "rights" and "interests" plausibly ensures protection of discretionary benefits appurtenant to accrued rights, but that did not transform the clause into one protecting future accrual. On this basis, since the closure preserved the salary link for past service and only terminated future accrual, it was a permitted exercise of the amendment power.
The judge noted that "the meaning of a particular clause ultimately turns on its own interpretation even if it might enjoy certain 'family resemblances' with others of the same type used elsewhere". This judgment may, nonetheless, be helpful in constructing rules with similar wording and shows that the BBC case is not authority for the principle that "interests" necessarily always covers future service benefits.
Read the case.
PASA guidance: Delivering effective digital transformation
The Pensions Administration Standards Association (PASA) has published the first in a three-part series aimed at helping schemes to deliver effective digital transformation. The guide focuses on setting the foundations for an effective digitisation journey, including: data quality, automation, cybersecurity and agile change strategies. It emphasises the need to take immediate action to update digital administration systems, as well as the importance of a saver-centric approach. The second guide, due in January 2026, will set out the next steps of the process.
Read the guide.
Latest revaluation order
The latest revaluation order has been published, setting out the minimum required level of revaluation for pension rights (excluding Guaranteed Minimum Pensions) of people who were early leavers from final salary occupational pension schemes on or after January 1, 1986, where accrued rights have been left in the scheme. The order also sets the minimum rate by which pensions in payment accrued in private sector defined benefit schemes must be increased for the following calendar year as 2.5%. The order comes into effect on January 1, 2026.
Read the revaluation order.
