Pensions Bulletin 2025/25

HMRC says employers can now claim back all VAT on pension scheme investment costs 

On 18 June 2025 HMRC published Revenue and Customs Brief 4 (2025) announcing an immediate and significant relaxation in the VAT deductibility by employers of pension scheme investment costs, such as investment manager fees. This change appears to be focussed on defined benefit schemes.

The Brief states that from 18 June 2025 employers can claim back all the VAT on pension scheme investment costs – a change compared to the previous, confused, rules on the VAT deductibility of such costs.

These old rules that have operated since around 2014 permitted deductibility only where there is “dual use” of investment costs by an employer and the trustees, as can for example be achieved through the two forming a VAT grouping or the trustees supplying administration services to the employer. In either case a method of apportionment on a fair and reasonable basis to determine how much input tax could be deducted by each party was required. If there wasn’t “dual use” the employer could not claim back any VAT on pension scheme investment costs (unlike the position for administration costs). 

This dual use concept came to the fore after HMRC responded to the 2013 PPG case. HMRC initially took the view that investment costs would not generally be VAT deductible (see Pensions Bulletin 2014/05), withdrawing a long-standing 70/30 treatment before restating it some years later.

Now, and seemingly also by reference to the PPG case, HMRC says that it will no longer view investment costs as being subject to dual use. From 18 June 2025 (but with a four-year look-back), all the associated input tax incurred on investment costs will be seen as the employer’s and be fully deductible by the employer, subject to normal deduction rules. Furthermore, where trustees are supplying pension fund management services to the employer and charging for them, they will also be able to deduct input tax incurred for the purpose of providing those services, provided the trustees are VAT-registered. Any deductions by the trustees will be subject to normal deduction rules. 

HMRC state that they will publish guidance to explain the policy change by autumn 2025. 

Regulator calls on DC trustees to take steps now to prepare for the Pension Schemes Bill

The Pensions Regulator’s interim Director of Policy and Public Affairs, Patrick Coyne, has called on DC trustees to take practical steps now to prepare for the measures set out in the Pension Schemes Bill and ensure that they continue to provide quality services. 

In a speech focussed on DC schemes and making reference to the substantial reforms being proposed to the DC market by the Bill, he called on trustees to be saver outcome focussed, build scale, be data-led and accountable and to innovate at retirement. He also said that with three to five years’ worth of reforms ahead the Bill will fundamentally reshape the DC market. 

Specifically, in the above four focus areas, he called on trustees to: 

• Have a clear control environment when it comes to investment governance; 
• Consider whether their scheme is sustainable in the long term and if they genuinely provide value; where this is in doubt consider what the steps would be to consolidation;  
• Consider investing in digital infrastructure to support automation and reporting, and engage with scheme administrators to understand just what services they can provide given suitable investment; 
• Start conversations at trustee board level on designing decumulation solutions. 

New interim chair of the Pensions Regulator

The Department for Work and Pensions has announced the appointment of Kirstin Baker as the new Interim Chair of the Pensions Regulator. She takes over from Sarah Smart whose departure was announced in February.

Kirstin Baker’s appointment starts on 1 August 2025 for a period of up to nine months.

PRAG consults on updated Pensions SORP 

The Pensions Research Accountants Group is proposing amendments to its Pensions SORP (Statement of Recommended Practice) which was last reviewed and updated in 2018. The amendments are in response to changes since 2018 – in particular, to pick up on: 

• Amendments made by the FRC to FRS 102 – the principal accounting standard applicable to pension schemes in the UK and Republic of Ireland; 
• Industry developments which impact on pension scheme financial reporting, such as in pension scheme investment strategies; and 
• Changes to pensions legislation and regulations. 

The draft SORP can be found here (suitably track-changed from the 2018 edition) and the invitation to comment here. Responses are requested by 17 September 2025. Ahead of this, on 18 July 2025, PRAG intends to hold a webinar for all interested parties to hear further details about the proposed amendments. 

Pensions Dishonesty Unit to be wound down 

The Pensions Dishonesty Unit, set up in November 2021 by the Pensions Ombudsman to investigate allegations of serious breaches of trust, misappropriation of pension funds and dishonest or fraudulent behaviour, is being wound down.

The Unit was set up on a pilot basis with temporary funding being provided by the DWP in recognition that in recent years there had been an increasing number of complex complaints finding their way to the Pensions Ombudsman concerning pensions dishonesty where those adversely impacted potentially went beyond the complainants. 

To date, this part of the Pensions Ombudsman’s service has issued Determinations in relation to 12 pension schemes involving more than 800 members and directed redress of over £40 million, much of which is likely to come from the Fraud Compensation Fund as actual recoveries to date are substantially more modest than the £40 million directed. 

Although the Unit has been very successful, running it has come at significant cost. Due to broader government funding constraints, DWP funding for the Unit ended on 31 March 2025, with runoff funds available until October 2025 to complete specific investigations. 

The Ombudsman may, in the future, still decide that a specific case within an occupational scheme may be investigated where there is no prospect of alternative redress, where there is a reasonable likelihood of redress and/or there is a novel legal issue or different type of scam involved. It will also continue to liaise closely with the Pensions Regulator, Independent Trustees and the Fraud Compensation Fund to ensure that the pensions industry is effectively working together to support members that are victims of pensions dishonesty. 

On a separate matter, Deborah Evans has been appointed as the new permanent Chair of the Pensions Ombudsman, replacing Anthony Arter, who took on the role on an interim basis following the death of Caroline Rookes. 

Royal Assent for the Data (Use and Access) Bill

The Government’s Data (Use and Access) Bill completed all of its Parliamentary stages earlier this month and on 19 June 2025 received Royal Assent. This completes a legislative journey that started a number of years ago with proposals from the previous Government leading to two different Bills one of which was withdrawn by the then Government and the other lost as a result of the 2024 General Election.

This latest Bill, signalled in last July’s King’s Speech, is broadly similar to the two earlier Bills. Amongst other things, it makes a number of changes to the Data Protection Act 2018 and the UK GDPR. These include:

• The ability, in certain circumstances, for organisations to extend the one-month timescale to respond to a subject access request;
• Limiting searches in response to subject access requests to those that are “reasonable and proportionate”
• Providing a clearer and more stable framework for international transfers of personal data,

The Act also replaces the current Information Commissioner’s Office (ICO) with a new Information Commission.