Finance Bill published
The Finance Bill has been published, setting out the draft legislative provisions for changes announced in the Budget and HMRC’s latest Newsletter. It includes:
- Allowing DB scheme surplus to be paid direct to members as an authorised payment.
- Abolition of the tax charge for death benefits paid after more than two years.
- Changes to lump sum death benefit excess charges.
- Increased flexibility in the threshold for payment of serious ill-health lump sums.
- Changes in relation to the forthcoming inheritance tax changes, allowing a prospective personal representative (PR) to direct pension scheme administrators to pay inheritance tax, and introducing flexibility on how notional pension property is counted when part of the estate is left to charity.
Read the Finance Bill.
Conditions for transfers: consultation response
The government has published a response to its consultation on changes to the regulations on conditions for transfers (the system of red and amber flags that was introduced in 2021 to strengthen protections against scams).
Following consultation, the government will proceed broadly as proposed. It will:
- Introduce a new red flag where the evidence provided on a transfer to a small self-administered scheme (SSAS) does not demonstrate an employment link with the receiving SSAS. The government will provide guidance on making this assessment. Where the employment link test is met, a new amber flag will require that the member attends a Money and Pension Service (MaPS) guidance appointment before proceeding.
- Broaden the First Condition test (that transfers to certain types of scheme, such as master trusts, can go ahead without needing to satisfy further conditions), so that transfers can proceed where trustees are satisfied, on the balance of probabilities, that the transfer is to a “reputable” pension scheme. The government and the Pensions Regulator (TPR) will develop a non-exhaustive list of factors to consider.
- Introduce an exemption to the requirement for a member to take MaPS guidance where they have already done so within the last 12 months, except where the transfer request is to a SSAS.
- Remove the amber flag for overseas investment, in recognition that these investments are a common feature of pension scheme investment strategies and are not a reliable indicator of scam risk.
Amending regulations will be laid in due course and are expected to come into force in April 2027; detailed guidance will be published alongside the regulations.
Read the consultation on conditions for transfers response.
Guided retirement consultation
The DWP has published a consultation on policy proposals for guided retirement (requiring DC schemes to provide members with one or more default decumulation solutions). The consultation closes on December 22, 2026.
Scope
The regime will apply to occupational schemes whose members are “primarily DC savers”. In hybrid DB/DC schemes, it would apply only to members whose benefits are solely DC. DC/cash balance hybrids stay in scope in relation to members entitled to DC benefits. Active, deferred, pension credit and pensioner members with flexible benefits who are not already in a default pension would be eligible. The following would be excluded: DB schemes with DC AVCs; deferred pots of GBP1,000 or less that meet the small pots consolidation criteria; SSASs and executive pension schemes; cash balance schemes; and whole life Collective Pension (CP) schemes. The government encourages schemes to consider whether default pensions would be beneficial even where not required.
Design and delivery
The consultation sets out a range of design requirements that schemes would need to deliver against, as well as non-mandatory “design considerations”. Some key points to note:
- Protection against longevity risk: Except where an individual's DC pots within the same scheme are worth GBP10,000 or less (net of any pension commencement lump sum), this is a core requirement. Schemes cannot set an upper life expectancy or target date at which the longevity protection would end.
- Single point of consent: Consent is given when the individual asks for payment. Members should not be expected to make any further choices once in the default solution.
- Minimum design factors: At a minimum, schemes must show that they have considered: inflation risk, flexibility, protections for irreversible elements, effective use of savings, valuable benefits, spousal or dependant protection, and the option of a Retirement Collective Pension Scheme (RCPS, previously referred to as a retirement collective defined contribution scheme or R-CDC).
- Market assessment: Schemes are expected to assess the decumulation options available across the market, not just in-house options. This must include consideration of an RCPS.
- The design process: Schemes will need to collect information on their members (they will have flexibility on how to achieve this), use that data to determine their members’ needs and interests, and determine whether there are distinct cohorts of people for whom different defaults will be appropriate.
- Allocating individuals to a cohort: Where a scheme provides more than one default pension, they will need to allocate individuals to cohorts. Where a scheme/provider is informed by an individual that their circumstances have changed so that they no longer materially meet the characteristics of the cohort they were originally assigned to, they should seek to reallocate them to an appropriate default.
The consultation explains which circumstances trigger the requirement to present a default pension. This may not be immediately evident when an individual contacts a scheme; screening questions may therefore be helpful. The government also expects to pursue offering targeted support, or similar services, within trust-based schemes.
Transfers at point of access
Trust-based schemes will be able to transfer all or part of their membership, with consent, to another pension provider to receive their default pension. This is available if it is not reasonably practicable to provide a default pension in-house, or if members are likely to get better outcomes elsewhere.
Views are sought on whether the content of transfer agreements should be prescribed. Administration charges imposed directly on individuals because of a transfer would be prohibited. The government is also exploring whether decumulation needs safeguards on costs and charges comparable to those in accumulation.
Tax protections
Legislation in a future Finance Bill will allow a protected pension age or lump sum protection to be retained where a member transfers all of their DC rights to a registered scheme and crystallises those rights within three months.
Communications
The consultation includes a minimum communications framework for new joiners; existing members; during accumulation; approaching retirement; and post-access. Providers would have flexibility over presentation.
Governance
Trustees will need to publish a Pension Benefits Strategy which sets out how trustees will: understand member needs, design or identify defaults, and communicate effectively with members. Alongside this, trustees will need to publish certain evidence and considerations. The Pension Benefits Strategy and default pensions would need to be reviewed at least every six years, and also when specified events occur.
The consultation stresses that these responsibilities will sit within the wider framework of trustee governance and notes that the government will respond to the trusteeship and governance consultation “shortly”. The government also intends to extend the Value for Money framework to decumulation in the future.
Timeline and next steps
On the current timetable, master trusts would need to comply with the new requirements by Summer 2029. Single employer trusts and common-employer master trusts would need to comply by Summer 2030. TPR guidance is expected to be consulted on in 2028 and finalised after the DWP regulations are made.
Read the Guided retirement policy consultation.
Retirement Collective Pension schemes: consultation response and draft regulations
The government has published a response to its consultation on policy proposals for the creation of RCPS, alongside draft regulations for consultation. This follows an initial, partial response in June 2026.
The draft regulations define RCPS and set out what they must do to become authorised, operational requirements and how they can be accessed. RCPS are intended for members who have retired or are about to retire; they cannot accept contributions from employment. The regime closely mirrors the provisions for Unconnected Multiple Employer Schemes (UMES) and RCPS will only be established within an UMES or a master trust.
The government intends that Guided Retirement will be the only route through which members access RCPS, at least initially. The government intends to deliver legislation in time to allow RCPS to be available as a Guided Retirement default pension and will offer a limited, conditional 12-month extension to master trusts that intend to develop a Retirement Collective Pension (see Guided Retirement Consultation section above).
As announced at Budget 2026, the government will introduce legislation that will enable individuals who start receiving a pension under an RCPS to convert that pension to a drawdown pension within a set period (the government proposes one year). Members transferring to an RCPS will also benefit from changes to allow protected pension age or lump sum protection to be retained on transfer, where benefits are crystallised within three months (see Guided Retirement Consultation section above).
Read the consultation on Retirement Collective Pension Schemes response and draft Retirement Collective Money Purchase Schemes regulations.
Trustees’ investment and fiduciary duties: consultation on guidance
The DWP is consulting on draft guidance on pension trustees’ investment and fiduciary duties. The guidance is non-statutory, although the government expects trustees to have regard to it and will consider whether to put it on a statutory footing in future. It does not create new legal obligations or alter existing duties; it is intended to support application of existing principles in areas of uncertainty. The consultation closes on January 27, 2027.
Key points include:
- Financially material considerations: Trustees should be confident that they can consider long-term, systemic and qualitative financially material considerations. More factors may be financially material than has traditionally been considered, and materiality can vary with context and change over time. What matters is a reasonable process, applied consistently and objectively.
- Non-financial matters: The guidance notes that many relevant factors which appear to be non-financial will, in fact, be found to be financial on analysis. Where this isn’t the case, it cites the Law Commission’s tests for taking non-financial matters into account: (i) trustees have good reason to think members would share the concern, and (ii) the decision does not involve a risk of significant financial detriment to the fund.
- Taking decisions: The guidance reiterates that the law does not require the decision-making process to be disproportionate or impractical. It sets out questions for trustees to ask themselves and stresses that narrative analysis is no less relevant than numbers.
- Stewardship: Trustees should engage with, question and challenge managers, and oversee their stewardship work. They should take managers’ stewardship performance into account at appointment.
- Other areas: The guidance also covers: considerations for transfers to master trusts or consolidation vehicles and buy-ins and buy-outs; interactions with advisers, in particular considerations for manager mandates; actively seeking members’ views; and industry collaboration.
Read the draft guidance on trustees’ investment and fiduciary duties and investment and fiduciary duties consultation document.
Securitisation: draft regulations
Draft regulations amending requirements for pension schemes investing in securitisation have been laid before Parliament. The draft Regulations, among other things, remove the current separate due diligence requirements for occupational pension scheme (OPS) investors, so that they become subject to the FCA due diligence rules. This should bring streamlining and alignment between schemes and other investors. Subject to Parliamentary approval, these changes will come into force on January 1, 2027.
Read the draft regulations and see our securitisation briefing for more detail.
Auto-enrolment: alternative quality requirements and review of thresholds
The government has published the findings of its latest review of the alternative quality requirements for schemes that are used for auto-enrolment. These provide alternative ways for schemes to demonstrate that they meet the relevant minimum quality requirements set out in the Pensions Act 2008. The tests are reviewed every three years and are now undertaken at the same time for the DB/hybrid, DC and Collective Pension (CP) alternatives (although currently it is not possible to perform separate analysis for CP schemes). The conclusion of this review is that the alternative tests are working as intended and should remain unchanged.
In addition, the DWP has concluded its annual review of the auto-enrolment earnings trigger and qualifying earnings thresholds, and proposes that the earnings trigger of GBP10,000 should remain unchanged for 2027-28 and that the qualifying earnings band will continue to be set at GBP6,240 to GBP50,270.
Read the outcome of the call for evidence and the review of the earnings trigger and qualifying earnings band.
TPR governance survey
TPR has published research into trustee governance practices across the market, following a survey with hundreds of trustees across both DB and DC schemes. Key findings included: larger schemes and those with professional trustees were more likely to achieve higher scores; areas where governance practices appeared less embedded included comparison against TPR’s General Code, having an Effective System of Governance (ESOG) and conducting an Own Risk Assessment (ORA). A gap in trustee succession plans was also highlighted.
Read the trustee survey results.
