Pensions Bulletin 2026/28

The Government updates its roadmap for pensions reform

The Government has published an updated roadmap setting out timelines for implementation of the reforms to workplace pensions legislated for in the Pension Schemes Act 2026 and expected to be delivered largely over the next five years. This updates the timelines set out in the original roadmap published in June 2025 when the then Pension Schemes Bill was first published (see News Alert 2025/02).

Alongside this, the DWP has also published its Pension Schemes Act 2026 Evaluation Strategy, which is intended to provide a framework for evaluating the effects of measures introduced by using logic models to demonstrate high level links between the key policies and their outcomes, and 12 key headline metrics that will be used to monitor progress.

The roadmap covers initiatives and developments in defined benefit (DB), defined contribution (DC) and collective defined contribution (CDC) schemes.

For DB schemes, the headlines are as follows:

• Regulations (see our News Alert) allowing schemes to more easily release surplus to sponsoring employers (and potentially members) on an ongoing basis are expected to be made early in the new year and come into force on 6 April 2027, ahead of the previously anticipated “end of 2027” target date. Changes to tax legislation that will allow direct surplus payments to members to be treated as authorised payments for tax purposes (discussed further in a separate article below) are expected to form part of the same package and come into force at the same time. 
• Conversely, the timeframe for implementing the new permanent regime for superfunds has been pushed back, with consultation on the regulations – originally expected to have been delivered already - now expected in early 2027 with implementation in October 2028, later in the year than originally anticipated.
• The roadmap also confirms that regulations enabling the indexation of compensation payments from the Pension Protection Fund (PPF) and Financial Assistance Scheme (FAS) relating to pensions built up before April 1997 are expected to come into force between October 2026 and January 2027, when the first such payments will be made.

On the Guided Retirement front there is recognition that the timescales for the implementation of Guided Retirement will need to work alongside those for setting up Retirement CDC (R-CDC) schemes. To this end, the expected date for master trusts to implement Guided Retirement has been pushed back from 2027 to Q3 2029, and there is a similar delay for single employer trusts. There is also a promise to test a “targeted and time-limited extension” mechanism, which would allow schemes who are committed to pursuing an R-CDC scheme as a default pension, for the R-CDC scheme to become operational before beginning to default members into it. 

The roadmap anticipates that consultation on the draft R-CDC regulations will launch between October and December 2026 which will include the proposals for the extension mechanism, and on the code a year later, with the regulations and code coming into force between October and December 2028 and the first R-CDC schemes being authorised between April and June 2029.

Consultation by September 2026 is also promised for the guidance on trustees’ fiduciary duties related to investment decision making - now non-statutory given the House of Lords’ objections (see Pensions Bulletin 2026/12) with guidance planned for publication between January and March 2027.

There are significant developments and publications related to many DC initiatives, and we discuss these in more detail in the articles below.

VFM rules and regulations consultation published

The DWP and FCA have jointly published the next consultation in the journey of establishing a Value for Money (VFM) Framework for pension schemes regulated by the Pensions Regulator (TPR) and Financial Conduct Authority (FCA). As has previously been announced, the intention is that there should be a consistent policy across both regulatory spaces, as far as possible. This consultation now provides proposed draft FCA rules and DWP regulations and seeks views on the policies behind these regulations. As a reminder, in the first instance, the requirements will only apply to the savings in the accumulation phase of default and quasi-default DC arrangements within workplace schemes.

Following previous feedback, the DWP is now considering several important easements to its implementation plans for the new VFM Framework, including a phased rollout intended to give schemes more time to prepare. From 2028, only master trusts, large single-employer trusts (with at least 50,000 members in a default arrangement) and firm-designed open multi-employer contract-based schemes will be required to complete a full VFM assessment and receive ratings. Smaller single-employer trusts, bespoke arrangements and legacy schemes will initially submit data only, with no public disclosure or ratings until 2029, when the full regime will apply across all in-scope arrangements.

Other easements include:

• Shortening the first data collection period to July–December 2027, rather than the full 2027 calendar year, giving providers more lead time before reporting begins.
• Not applying the Framework's formal consequences for poor performance during the first assessment cycle. Although underperforming schemes would still be expected to improve, automatic measures such as closure or member transfers would not begin until the second cycle.
• Replacing the proposed arithmetic investment performance methodology with a geometric approach. This is intended to align more closely with industry practice while reducing reporting burdens.
• Removing the proposed requirement for independent third-party assurance of forward-looking metrics. Instead, schemes would disclose the assumptions underpinning these metrics, allowing stakeholders to scrutinise them directly.
• Exempting in-house Additional Voluntary Contributions (AVCs) from the framework. The Government has also confirmed that Small Self-Administered Schemes (SSASs) along with Executive Pension Plans (EPPs) will be exempt for the time being. CDC schemes will also be exempt from the VFM framework at this stage, but this will be kept under review.

However, a potential point of concern is that DWP is still minded to include hybrid arrangements which have both DB and DC elements in the framework, including those that operate on an underpin basis. The Government says the framework will not apply to the DB elements of such schemes.

For trust-based arrangements, the intention is that the VFM assessment report will be a standalone document, not part of the Chair’s statement. Apparently DWP is also considering amendments to the Chair’s statement to ensure there is no duplication or overlap with the VFM requirements.

Looking ahead, the DWP intends to publish final regulations for trust-based schemes by January 2027, with the FCA publishing its final rules for contract-based schemes during the first quarter of 2027. There will also be further industry roundtables and stakeholder events to discuss practical aspects.

The consultation closes on 1 September 2026.

Asset allocations of master trusts and contract-based DC default arrangements

As part of the work in shaping the VFM framework (see above), both the FCA and TPR undertook surveys of asset allocation data in default arrangements. The surveys covered eight contract-based pension providers (£260bn of assets) and 25 master trusts (£207.7bn) respectively. Both regulators have provided separate and combined analysis of the data they collected. Although the precise numbers differ, depending on whether looking at just one set of results, or the combined results, the surveys found that around 85% of assets in default arrangements were allocated to non-UK assets. Data also revealed that equities and bond investments accounted for nearly 90% invested assets across the combined surveys, with around 7% of assets in listed or unlisted private market investments.

DWP seeks views on detailed design of DC scale requirements

The DWP has published a discussion paper on the key elements of its proposed “scale” policy for multi-employer DC schemes, marking the next stage in implementing the requirements of the Pension Schemes Act 2026 (see our Guide to the Act). The paper is not a formal consultation but seeks industry views to inform the development of the detailed regulations, on which consultation is planned for the latter part of 2027.

Under the proposals, authorised master trusts and group personal pension schemes used for automatic enrolment will be required to operate at least one “Main Scale Default Arrangement” (MSDA) with assets of at least £25 billion by 2030 (or £10 billion if on the transition pathway ie on track to reach £25bn by 2035).

The discussion paper explores several important aspects of the policy, and asks what the practical challenges are, including considerations of what should be in the MSDA, how the assets in the MSDA should be managed under a Common Investment Strategy (CIS) and how connected schemes and common investment strategies should be treated.

Responses to this discussion paper should be sent by 7 September 2026.

DWP sets out principles for guided retirement defaults

The DWP has published its guiding principles for the new "default pension benefit solutions" that trustees and providers of workplace DC pension schemes will be required to offer under the guided retirement provisions of the Pension Schemes Act 2026 (see our Guide to the Act). The Government makes clear that these principles should be considered to apply across the whole of the market, including for schemes regulated by the Financial Conduct Authority, which is required to introduce equivalent rules, as far as possible.

The key principles are:

• No requirement for complex decision-making by the member: The requirements place responsibility on schemes to design and manage appropriate default pensions in members’ interests. For most savers, the only decision required will be when to access their pension and whether to remain in the default pension or choose an alternative.
• Protection against longevity risk: The Government considers protection against longevity risk to be a crucial element of default pensions, and so they must provide a retirement income that lasts throughout that retirement. However, trustees and scheme managers will have flexibility about how to deliver this and so default pensions could incorporate different phases, such as a flex then fix approach.
• Maintaining freedom of choice: There are a significant number of people who value the freedom to choose their own options and the Government recognises some people may want to make their own decisions, particularly if they have higher levels of pension wealth or more complex circumstances.
• Requiring consent: The Government is clear that at the point when a member is seeking to access their assets, they will need to agree to start receiving payment via the default pension. This is the key consent moment. If a default pension includes different phases (such as a flex then fix approach), members should be informed at the point of access and throughout their pensions journey about when their ability to take a different choice would become restricted, but schemes will not be expected to seek consent multiple times.

DWP research highlights adequacy and decumulation challenges

The DWP has published two qualitative research reports that add to the evidence base on pensions policy.

The two reports, Pension Decumulation and Decision-making and Lived Experiences of Adequacy in Retirement, are based on a total of 90 interviews with people who were retired or approaching retirement. The first looks at how people approach decisions on when and how to access their DC pension savings, while the second examines how financial decisions and individual life courses shape people’s experiences of adequacy in retirement in practice.

The decumulation report suggests that understanding of pension access options varies considerably. The 25% tax-free lump sum and the state pension were the best understood features, but knowledge of drawdown, annuities, charges and investment risk was generally low. Pension Wise was valued but under-used, while paid financial advice was often seen as unaffordable.

The adequacy report suggests that adequacy is perceived as a financial baseline for retirement rather than a state of comfort, and is shaped by a combination of retirement income, savings, housing, and wider life-course experiences. Many interviewees saw not having to draw on savings as a key marker of adequacy. The reports also highlight that retirement is often not a planned transition, particularly for lower-income groups.

The decumulation report concludes that its findings broadly align with policy developments such as Targeted Support and Guided Retirement, and suggests that clearer and more personalised information, together with earlier financial education, could help improve decision-making.

Finance Bill proposals to allow authorised lump sum surplus payments to members published

The Government has now published draft legislation that will allow surplus payments to DB scheme members to be made as an authorised payment - subject to taxation as pension income at recipient's marginal income tax rate - alongside an explanatory note and a policy paper discussing the proposals in more detail. This resolves the issue that as the legislation currently stands, the payment of surplus to members is not an authorised payment under pension tax rules and is therefore subject to an unauthorised payment tax charge of at least 40%.

As expected, such surplus payments will usually be restricted to those over Normal Minimum Pension Age (NMPA) but the legislation is drafted so that it is possible to grant a right to a deferred payment which can then be made after NMPA, subject to certain listed conditions being met at the time the award is granted (rather than when it is paid).

This new benefit will not be subject to the Annual Allowance nor count towards a member's tax-free lump sum at retirement calculation or lump sum allowance. For those below NMPA, it will be revalued between date of award and NMPA thanks to provisions included in the draft surplus regulations published on 2 June (see our News Alert). The proposals are expected to come into force on 6 April 2027 alongside proposals which will allow schemes to more easily release surplus to sponsoring employers on an ongoing basis (discussed further in the article covering the updated roadmap above). 

The draft legislation forms part of the suite of material that is expected to be in the Finance Bill that will follow the Autumn Budget. The only other proposal in the material published of direct relevance to pension provision relates to the introduction of a new relief from Stamp Duty Land Tax for certain land transactions involving the Local Government Pension Scheme.

The technical consultation on this material runs until 7 September 2026.

PPF annual report shows strong position as focus turns to delivering Pension Schemes Act change

The Pension Protection Fund (PPF) has published its Annual Report and Accounts 2025/26, the first such report since big changes were made to the PPF compensation and levy rules by the Pension Schemes Act 2026. As at 31 March 2026, the PPF had £31.5bn of assets under management, up from £31.1bn a year earlier. Its current claims liabilities for members already transferred to the PPF fell from £17.0bn to £16.4bn, resulting in the excess future claims and risk reserves increasing from £14.1bn to £15.1bn (these figures do not allow for schemes in assessment that are likely to transfer.) The return on growth assets was 7.1%, and the PPF paid £1.2bn in compensation during the year.

Following the Pension Schemes Act provisions which required the PPF to pay inflation-linked increases of up to 2.5% a year on pre-1997 compensation, where the original scheme rules provided for such increases, from January 2027, the PPF estimates that this will affect more than a quarter of a million PPF and Financial Assistance Scheme (FAS) members, and would have reduced the PPF’s reserves by £1.4bn, to £13.7bn as at 31 March 2026. Separately, the PPF announced on 6 July 2026 that it would begin to contact members eligible for pre-97 indexation over the next two months, and published a list of schemes whose members are eligible for these increases.

The Pension Schemes Act also enabled the PPF not to collect a conventional levy in 2025/26, originally estimated to be £45m. The PPF notes a consequence of not collecting such a levy being a net operating deficit of £20.4m, compared with a £79.3m operating surplus the year before when a levy of £104.4m was collected, with operating expenses now to be funded from investment returns.

The Act also removed the ability for the Department of Work and Pensions to collect the PPF Administration Levy or provide a grant to the PPF for administration expenses. The PPF’s accounts shows total grants received over 2025/26 as £21.3m; we expect at least a proportion of this will also no longer be available going forward.

The PPF has completed 37 Fraud Compensation Fund (FCF) cases in the year, resulting in payments of more than £100m and affecting over 2,770 people. As a result, the PPF says the FCF has insufficient liquid funds and prospective levy income to meet expected claim payments, and has obtained a loan facility from the DWP.

HMRC pension VAT documents – more updates

In June HMRC published updated VAT guidance for funded pension schemes (see Pensions Bulletin 2026/23). This stated that if an employer contracts directly with a provider of fund management services, then it can deduct the input tax incurred. So whilst an employer may recover input VAT on both pension administration and investment management costs, it is with the caveat that the employer has to contract directly with the provider.

 HMRC has now updated one of its core public materials in this area, VAT Notice 700/17.

The updated notice now confirms that employers may recover input VAT on both pension administration and investment management costs, subject to normal VAT reduction rules. The update makes a number of changes. It revises guidance for employers and trustees, updates the sections dealing with VAT groups and insolvent employers and removes the long-standing section that contained HMRC’s indicative attribution of pension scheme services between “administration” and “investment”. That section included the 70:30 split used for mixed invoices, which is no longer HMRC policy.

Pensions Ombudsman closes record number of complaints but backlog remains

The Pensions Ombudsman (TPO) has published its Annual Report and Accounts for 2025/26.

TPO closed a record 10,793 pension disputes during the year, 14% more than the previous year and 63% more than 2023/24, before the Operating Model Review (see Pensions Bulletin 2024/21) was implemented. However, it also received a record 10,944 new complaints so its caseload slightly increased over the year.

There were also signs of progress with cases requiring substantive consideration. While the number of formal adjudication cases closed over the year fell slightly from 997 to 968 TPO says that this reflected a deliberate focus on older and harder cases with complex cases accounting for 55% of adjudication closures, compared to 42% in 2024/25.

Contributions remained the largest category of new complaint, accounting for 19%, followed by retirement benefits, calculation of benefits and transfers.

TPO itself received 108 complaints about its service, of which 36% were upheld or partly upheld. Delays and waiting times accounted for 58% of them. Separately, there was a marked increase in legal challenges, with nine formal judicial review applications compared with none in the previous year. TPO says that some challenges contained errors apparently generated by artificial intelligence, including incorrect case references, which could go some way to explaining the increased number of challenges this year and added to the time needed to deal with them.

TPO received £13.41m of grant-in-aid during 2025/26, up from £12.25m all funded from the general levy. Additional funding for the next three years to expand its frontline casework teams has been secured with an agreed budget of £15.7m for 2026/27.

TPR sets out five-year strategy

TPR has published its final corporate strategy for 2026-2031. This follows a consultation earlier this year (see Pensions Bulletin 2026/19) and sets out how it intends to regulate as the Pension Schemes Act 2026 reforms are implemented.

Alongside this a Regulation Action Plan has been published setting four growth-related goals for TPR and identifying the regulatory milestones and indicators against which progress is expected to be assessed.

The strategy identifies six outcomes that will guide TPR’s work. There are three member outcomes: that savings are secure, members receive better value and pensions are fair, supported by three market outcomes: that schemes are well-run, there is a sustainable and resilient market that supports UK growth and operates efficiently and there is a seamless and integrated system covering the journey from joining a scheme to receiving retirement income.

The strategy confirms TPR’s shift towards forward-looking, system-wide and increasingly market-shaping regulation. It plans to use better data to intervene earlier, strengthen oversight of service providers and use the Value for Money Framework to drive consolidation where schemes underperform.

TPR will also support productive investment, Guided Retirement, CDC and responsible technological innovation, provided this remains in members’ interests.

The Regulation Action Plan covers four growth goals for TPR: reforming workplace pensions to boost growth and support adequate retirement incomes; unlocking DB surplus and master trust capital; supporting productive investment, particularly in the UK; and promoting responsible use of AI.

The plan links these goals to implementation of the Pension Schemes Act 2026 reforms, including Value for Money, DC scale, Guided Retirement and small-pot consolidation. Progress indicators include more DC megafunds and DB superfunds, fewer default arrangements and small pots, wider access to decumulation products and reduced variation in investment performance.

DWP proposes significant changes to General Levy

The DWP is consulting on proposed changes to the General Levy on occupational and personal pension schemes for the period from April 2027 to March 2030. The General Levy (the levy) is a collective funding mechanism that underpins the costs of regulating the private pensions system in the UK. The levy recovers the funding provided by the DWP for the Pensions Ombudsman and certain activities of the Pensions Regulator and the Money and Pensions Service. The levy is paid by eligible registrable occupational and personal pension schemes. The amount of levy each scheme pays is determined by the type of scheme and the number of members it has on the “reference day”.

For several years the costs recovered by the levy have not matched the expenditure of the levy-funded bodies. The DWP has sought to address this in the past, most recently in 2024 (see Pensions Bulletin 2024/09). However, this has not improved the levy funding position with DWP stating that the levy debt had reached £154m by March 2026 and, if the 6.5% annual increase that has applied for the last three years is just kept in place then the debt is expected to raise further.

Taking into account the state of the pensions market, and the projected future composition of it (eg fewer and larger DC schemes and master trusts, and DC assets expected to exceed DB assets by 2030), DWP is proposing the following increases to each element of the levy structure for 2027 to 2030:

• DB schemes: 5% pa
• DC schemes (excluding master trusts): 6.2% pa
• Master trust and personal pension schemes: 9% pa

This is the only option that DWP is consulting on, and they state that the levy funding position should then return to in year surplus by 2033-34 with the aim of stabilising the accumulated levy debt by 2035-36,

The DWP also notes that the underlying design and model of the current levy structure has remained broadly the same for more than three decades. Therefore, DWP intend to take a broader review of the levy over the coming years.

The consultation closes on 8 September 2026.

Pensions dashboards: focus shifts from connection to readiness

The latest Progress Update Report from the Pensions Dashboards Programme confirms that implementation remains on course ahead of the 31 October 2026 connection deadline. Around 85% of pension records – over 70 million workplace and private pension records - are now connected, while consumer testing of the MoneyHelper Pensions Dashboard is progressing ahead of its planned public launch in 2027/28.

Alongside connection, the emphasis is increasingly on data quality, operational reporting and preparing for the eventual introduction of private sector dashboards. The report also includes a brief update from the Pensions Regulator stressing that schemes must maintain accurate data after connecting, with a warning that enforcement action will be taken where schemes fail to meet their legal duties.

Northern Ireland follows GB on bulk transfers into CDC schemes

The Occupational Pension Schemes (Preservation of Benefit) (Amendment) Regulations (Northern Ireland) 2026 have now been made. They remove the “appropriate adviser” requirement when trustees transfer money purchase benefits without guarantees to collective defined contribution (CDC) schemes using the existing bulk transfer mechanism. This is the Northern Ireland equivalent of the GB regulations (see Pensions Bulletin 2026/23), with the same intended effect and the same 31 July 2026 commencement date.