HL UK Pensions Law Digest 11 December 2025

Welcome to our latest update, in which we cover: 

Pension Schemes Bill

• An update on the Bill’s progress through Parliament;

Virgin Media remedy for rule amendments

• Amendments to facilitate use of the Virgin Media remedy;

Other amendments to the Pension Schemes Bill

• Including provisions for pre-97 increases on compensation from the Pension Protection Fund and Financial Assistance Scheme;

Fiduciary duties and trustee investment powers

• The Pensions Minister promises statutory guidance;

Inheritance tax on pension death benefits

• Further detail included in the Finance Bill;

Salary sacrifice and pension contributions

• A new Bill to limit savings on National Insurance contributions;

Finance Bill: registration of tax advisers

• Finance Bill provisions contain helpful amendments to the requirements for "tax advisers" to register with HMRC;

Pensions Administrative Standards Association (PASA) publishes Guidance on Delivering Effective Digital Transformation

• PASA guidance provides practical direction for schemes progressing through digital transformation;

Pensions Regulator (TPR) publishes a blog on its role in driving digital transformation in the pensions industry

• TPR's blog reports on the first meeting of its new Data and Digital Industry Working Group;

Pensions Regulator (TPR): revised administration guidance

• TPR’s expectations for satisfying its Code of Practice.

Pension Schemes Bill: progress through Parliament 

• The Pension Schemes Bill completed its passage through the House of Commons on 3 December 2025 and was introduced in the House of Lords on 5 December.
• Various government amendments to the Bill have been passed – for details please see below.
• Second reading in the Lords is scheduled for 18 December, after which the Bill will be scrutinised by Committee.
• Parliament will be in recess from 19 December 2025 to 4 January 2026.

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Pension Schemes Bill: Virgin Media remedy

Provisions in the Bill will enable retrospective validation of rule changes which may have otherwise been invalid, following the Court of Appeal’s decision in the Virgin Media case.

Following industry feedback, various helpful amendments have been made to the remedy provisions.

Meaning of “positive action”

The remedy is only available in respect of “potentially remediable alterations”. If trustees or managers have taken “positive action” treating the rule change as void, then the alteration will not be potentially remediable. As amended, trustees or managers will only be treated as having taken positive action if they have notified the members in writing that either:

• The trustees consider the alteration void and will administer the scheme as if the alteration has no legal effect; or
• The trustees are taking any other step in relation to scheme administration which has the effect of altering payments to or in respect of members (because the trustees consider the amendment to be void).

Exclusion from Virgin Media remedy if subject to legal proceedings

The remedy may not be used where the validity of the rule change has been subject to legal proceedings. There had been concern that a member making a complaint to the Pensions Ombudsman might be treated as “legal proceedings”, and so prevent use of the remedy.

As amended, the remedy is not available where the rule change has been subject to “qualifying legal proceedings”. Proceedings will be “qualifying legal proceedings” if they are brought before a UK court and:

• They will determine a dispute about scheme rules; and
• The parties include the trustees and at least one beneficiary (or a representative of the beneficiaries).

The explanatory statement to the amendments makes clear that proceedings before a tribunal or a complaint to an ombudsman will not be “qualifying legal proceedings”.

Schemes which have wound up

Rule changes to schemes which have wound up, or entered the Pension Protection Fund (PPF) or the Financial Assistance Scheme (FAS), before the remedy provisions come into force will be treated as always having been valid.

The remedy provisions have been amended so that rule changes to part of a scheme which has wound up or gone into the PPF or FAS before the remedy is in force are also treated as valid.

When will the remedy provisions come into force?

The remedy provisions will come into force when the Bill is passed and receives Royal Assent. This is earlier than under the previous version of the Bill, which provided for the remedy provisions to have effect two months after Royal Assent.

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Other amendments to the Pension Schemes Bill

Other government amendments recently made to the Pension Schemes Bill include the following.

Pre-97 increases on PPF/FAS compensation

• Amendments provide for annual increases to pre-1997 compensation from the Pension Protection Fund (PPF) or the Financial Assistance Scheme (FAS), where the original scheme’s rules provided for increases to pensions in payment.
• Where scheme rules provided for increases to guaranteed minimum pensions (GMPs) but not for pre-97 excess pension over GMP, the PPF or FAS will pay increases on a proportion of the member’s pre-97 benefits.
• In a speech to Parliament (column 1081), the Pensions Minister explained that 250,000 PPF members are expected to benefit from the changes but that 90,000 members will not benefit.

PPF administration levy

• The PPF administration levy will be abolished from 1 April 2026 (or the date the Bill receives Royal Assent, if later).

Consolidation of small pots

• The person responsible for making proposals for a small dormant pot will be known as the “destination proposer”.
• Regulations may allow more than one person to be destination proposers in relation to different descriptions of proposals.
• The Pensions Minister has stated that the government is committed to exploring both a federated model and a centralised data platform as alternative mechanisms for delivering small pot consolidation.

Defined contribution scale requirement

• When determining whether a relevant Master Trust (RMT) or group personal pension (GPP) meets the requirement to have at least £25 billion of assets in its main scale default arrangement, assets held under any connected RMTs or GPPs may be taken into account.
• A relevant Master Trust or group personal pension will be “connected” if it meets prescribed requirements, which may include: for RMTs, having the same scheme funder or scheme strategist; and for GPPs, having the same provider.

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Statutory guidance on fiduciary duties

The Pensions Minister intends to bring forward legislation to allow the government to develop statutory guidance for trust-based private sector pension schemes, to give greater clarity on trustees’ ability to take into account factors such as climate risk and members’ standard of living when making investment decisions.

More details on the government’s plans for guidance are expected “in due course” (see the Minister’s speech on the Pension Schemes Bill, column 1043).

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Inheritance tax on pension scheme death benefits 

The Finance Bill was introduced in Parliament last week and, as expected, includes provisions to bring many death benefits from pension schemes within the scope of inheritance tax (IHT) for deaths on or after 6 April 2027.

The Bill gives some clarity on excluded death in service benefits; withholding notices; direct payments of IHT; and liability.

Exclusion of death in service benefits

• Death in service benefits will be excluded when calculating liability for IHT, provided that the benefit is paid in respect of a member who, immediately before death, was:
  • An active member; and
  • In employment or other work of a particular description.
• A benefit which is also payable where a member does not meet these conditions (such as an unused defined contribution (DC) pot which is payable on both death in service and death in deferment) will not be excluded.
• Both discretionary and non-discretionary death in service benefits will be outside the scope of IHT and the benefit may be paid in lump sum or pension form.
• The draft legislation issued this past summer would have excluded benefits for the self-employed or business partners. The widening of the employment or other work condition is therefore welcome.

Withholding notices

• The member’s personal representatives (PRs) may give a “withholding notice” to the pension scheme administrator (PSA) if the PRs know that they are, or have reason to believe that they may be, liable to pay IHT on death benefits under the pension scheme.
• The withholding notice will have effect from receipt by the PSA until:
  • The PRs withdraw the notice;
  • Any IHT plus interest in relation to benefit has been paid; or
  • 15 months after end of month of the member’s death.
• Where a withholding notice has effect, the PSA is prohibited from paying more than 50% of the beneficiary’s entitlement.
• The provisions raise questions about how the PSA will know that a withholding notice has ceased to have effect and that the PSA may therefore pay the balance of the benefit due. A PSA may face pressure from the beneficiary to pay benefits but, unless the PRs withdraw the notice or the PSA is otherwise certain that the correct IHT has been paid, the withholding notice will continue in force until the end of the 15 month period.

Direct payment by pension scheme administrator

• The PRs or a beneficiary may give a direct payment notice to the PSA, requiring the PSA to deduct IHT (plus any interest) from the death benefit and pay this direct to HMRC.
• The PSA must pay the IHT within 35 days of receiving a valid direct payment notice, unless the IHT and interest is more than the unpaid benefits in the scheme, or if the amount due is less than £1,000.
• Payment of IHT will be a new type of authorised payment for tax purposes.
• The legislation includes an override of scheme rules, to allow for direct payment of IHT.

Liability for IHT on pension scheme death benefits

• The member’s PRs will be liable for IHT on pension scheme death benefits. However, once the PRs have received a discharge certificate from HMRC that all known IHT has been paid, they will not be liable if further pension arrangements are subsequently discovered, unless the failure to discover these arrangements was due to the PRs’ carelessness.
• The PSA will be liable for IHT on pension benefits where pension property is vested in the PSA. The PSA will also be liable for IHT if it:
  • Pays benefit in breach of a withholding notice; or
  • Fails to pay IHT within 35 days of receiving a valid direct payment notice.
• A beneficiary will be liable for any unpaid IHT once property is vested in the beneficiary.

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Salary Sacrifice: National Insurance Contributions (Employer Pensions Contributions) Bill

The National Insurance Contributions (Employer Pensions Contributions) Bill has been introduced in Parliament. The Bill will restrict the advantages of using salary sacrifice arrangements for making employee pension contributions from 6 April 2029, as announced in the Autumn Statement.

The Bill will introduce power to make regulations to treat employee pension contributions paid by salary sacrifice as remuneration subject to National Insurance contributions (NICs), where the contributions exceed the contributions limit (to be set at £2,000 for the first tax year).

The regulations will apply where pension contributions are sacrificed under “optional remuneration arrangements”, defined in existing tax legislation as arrangements where:

• The employee gives up the right to future earnings (as is common in current salary sacrifice arrangements); or
• The employee agrees to receive a benefit rather than an amount of earnings (so potentially capturing attempts to agree an artificially low salary alongside higher pension provision).

Existing legislation provides that a benefit will be treated as provided under an optional remuneration arrangement “so far as it is just and reasonable” to do so.

From 6 April 2029, employee pension contributions above the contributions limit and paid under a salary sacrifice arrangements will be subject to Class 1 primary NICs for employees and Class 1 secondary NICs for employers.

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Finance Bill amends provisions relating to the registration of tax advisors

The Finance Bill contains revamped provisions in relation to the registration of tax advisers, many off which take account of stakeholder representations.

The original provisions were published alongside a policy paper in July this year. Our briefing note summarises the issues relevant to pensions professionals, which arose from the original drafting. In short:

• There was a concern that pension scheme administrators would be required to register with HMRC, in order to be able to interact with HMRC on behalf of their trustee clients;
• To avoid the risk of being caught by the requirements, trustees would need to delegate all HMRC communications to their administrators; and
• The potential administrative burden of compliance was arguably excessive and disproportionate, especially for large organisations.

The Finance Bill attempts to address those concerns. Key points include:

• The definition of "tax adviser" is still broad enough to catch third party administrators and trustees.

However, “tax advisers” who are “complying with an obligation of the adviser under any enactment” will now be exempt from the obligation to register. This takes pension scheme trustees outside of the requirements, even if they do not delegate HMRC communications to their administrators, to the extent that their interaction with HMRC (and their "tax adviser" activities) derive from legislation (e.g. the disclosure regulations).

Administrators may also be able to rely on this exemption, depending on whether a strict literal interpretation of the wording is adopted by HMRC. The exemption refers to an “obligation of the adviser”, rather than to a legal obligation in general terms. The legal obligations relevant to pension scheme administrators are generally imposed on the trustees of the pension scheme; not on the administrators themselves. It is hoped that the position will be clarified by HMRC guidance.

• The revised provisions reduce the administrative burden on "tax advisers" who fall within the registration requirements. In particular, the eligibility requirements which previously extended to all "senior managers" of an in-scope organisation will now apply to a much narrower category of "relevant individuals". For an organisation which has six or more "officers" (e.g. directors or partners), "relevant individuals" comprise those who "play a significant role" in making decisions about "how the whole or a substantial part of the tax adviser activities of the organisation are to be managed or organised"; or in the actual managing/organising of the whole or a substantial part of those activities.
• Tax advisers will be required to register with HMRC from May 2026, and not from 1 April 2026 as previously advised. HMRC has confirmed that a transitional period of at least three months will apply.

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Pensions Administrative Standards Association publishes Guidance on Delivering Effective Digital Transformation 

On 23 November 2025, the Pensions Administrative Standards Association (PASA) published part one of a three-part guidance series from its Digital Administration Working Group, which aims to provide practical guidance for schemes on delivering effective digital transformation. Part one focuses on "setting strong foundations" and outlines how schemes can establish the right frameworks, technologies and cultural mindset to ensure successful and sustainable digital change.

The Guidance highlights the importance of adopting a saver-centric approach and sets out key considerations for schemes at varying stages of digital maturity, from new entrants to highly developed digital administrators. It notes the importance of prioritising data quality, investing in automation, maintaining robust cybersecurity protocols and adopting agile change strategies.

Part two is due for publication in January 2026.

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Pensions Regulator publishes a blog on its role in driving digital transformation in the pensions industry 

On 8 December, Paul Neville, Executive Director of Digital, Data and Technology at the Pensions Regulator (TPR) published a blog focusing on TPR's role in driving transformation in how the pensions industry uses data and digital technology to deliver improved outcomes for savers.

TPR highlights the work of its new Data and Digital Industry Working Group, which includes trustees, as well as pensions and technology professionals. At its first meeting, the Group identified two primary challenges, in respect of which it will (in collaboration with others in the industry) research and design solutions:

• Loss of trust: driven by risks such as AI impersonation, deepfakes, data breaches or ransomware, where savers struggle to distinguish genuine schemes from fraudsters.
• Stagnation: the risk of creating a ‘digital wasteland’ of fragmented, manual, disconnected systems.

The group agreed three overarching objectives to drive meaningful change:

• Action-oriented, targeted guidance to help savers make confident decisions.
• Help the industry adopt AI in a way that is responsible and ethical.
• Collaborate on clear, consistent standards for data to enable seamless communication across the industry, reducing duplication and friction for savers and schemes.

The Group will refine these objectives in advance of their next meeting in February.

TPR also flagged potential opportunities for volunteers to join specialist sub-groups next year.

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Pensions Regulator: revised administrative guidance

The Pensions Regulator (TPR) has revised its administration guidance, setting out practical steps for trustees or managers to meet TPR’s expectations in the administration module of its Code of Practice. The revised guidance replaces TPR’s guidance on administration of defined contribution (DC) schemes and is intended to apply to all types of scheme.

The revised guidance includes clarification of TPR’s expectations in relation to member communication, data management, disaster recovery and business continuity planning. New aspects of the guidance include:

• Emphasis on the importance of arrangements for overseeing administration (whether in-house or outsourced);
• Guidance on the governance of IT systems, in particular: system adequacy, change control processes, and regular back-ups, with links to TPR’s existing guidance on cyber security; and
• Widening performance measurement to capture quality and accuracy, not simply meeting.

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Authored by Jill Clucas and Susanne Wilkins.