Pensions Bulletin 2026/46

DWP sets out reforms to trusteeship and governance 

The Department for Work and Pensions (DWP) has published its response to its consultation on trusteeship, governance and administration, which explored wide-ranging changes to the governance and oversight of trust-based pension schemes (see Pensions Bulletin 2025/51). 

The DWP’s decisions include the following: 

Trustee capability and expertise

DWP has decided against imposing standard trustee term limits, recognising the value of continuity and scheme-specific knowledge. DWP intends to work with TPR to strengthen and broaden the trustee knowledge and understanding requirements so that they reflect the changing demands of trusteeship. Alongside this, trustee board chairs will be required to assess and monitor their board’s collective skills and the effectiveness of its skills mix, supported by a new TPR competency framework. DWP is also considering how to enable TPR to gain greater visibility of trustee skills and board capability.

As schemes consolidate and the traditional member-nominated trustee (MNT) model becomes harder to replicate in larger, more diverse DC schemes, DWP expects schemes to adopt alternative approaches to reflecting member perspectives that are appropriate to the scale, nature and diversity of their membership and which provide meaningful input into trustee decision making. This forms part of the government’s wider reform package on governance and representation.

The DWP and TPR will continue work to establish and test the feasibility of an initial trustee directory by 2029, using existing data and powers where possible. With mixed responses to the proposal, there is no firm commitment to establish a public trustee; alternative approaches to appointments and governance remain under consideration.

Professional trustees (PT) and professional corporate sole trustees (PCST)

The DWP considers that restrictions on PT firms providing advisory services would be disproportionate. However, schemes that receive advice from entities with a commercial link to the PT firm represented on the trustee board should be able to explain why those advisory arrangements are appropriate, how conflicts are managed and how they provide value for members.

The DWP has decided against mandating trustee accreditation at this stage. It is also not restricting the number of appointments held by individual trustees, although this will remain under review.

While recognising that the PCST model can be beneficial in certain circumstances, particularly for small schemes and those approaching buyout, the DWP plans to set clearer criteria on the appropriateness of appointing PCSTs. In particular, existing trustee boards will be required to approve an employer’s proposed transition to a PCST in line with these criteria, and there will be a resolution process where the board rejects the proposal.

Master trusts

The master trust authorisation and supervision regime will be extended to cover governance and conflict management across the provider entity, as is currently the case in the Superfunds and Collective Pensions regimes. Changes will include stronger fit and proper requirements for relevant key function holders, enhanced significant event notification requirements, and powers for TPR to intervene at an earlier stage where a master trust is at risk of failing to meet the authorisation criteria. The DWP will also consider whether the minimum size of the trustee board should be increased.

Direct regulation of administrators

The DWP intends to introduce mandatory minimum standards for pension scheme administration providers, based on existing standards published by TPR and the Pensions Administration Standards Association. Administrators of TPR-regulated schemes will also be required to register with TPR. Trustees will retain overall responsibility for scheme administration and member outcomes, but TPR will gain information-gathering, investigatory and enforcement powers, including the ability to issue improvement notices and financial penalties for serious failings.

No firm implementation timetable for the various proposals is given, although the DWP promises to work with TPR and the industry to bring these into action, and areas that need legislative changes will be taken forward at the next opportunity.

TPR highlights governance gaps at smaller pension schemes

The Pensions Regulator (TPR) has published research from its latest trustee survey highlighting significant differences in governance standards between small and large pension schemes, warning that smaller schemes may be less well equipped to identify and manage risks to members’ savings.

The research found that only 27% of small DC schemes (12-99 members) have formal governance arrangements in place, compared with 94% of large DC schemes and 89% of master trusts. Larger schemes and those with professional expertise were also more likely to achieve higher governance scores.

Other findings included that fewer than half of DB and DC schemes reported having a trustee succession plan, while only 29% of trustee boards identified improving member outcomes as the primary driver of their decision-making. A further 55% said member outcomes influenced decisions but were balanced with equally important priorities, such as regulatory compliance and cost.

TPR is calling on trustees to benchmark their governance against its General Code, strengthen succession planning and board development, and ensure that member outcomes remain central to decision-making. It also emphasised that trustees should consider whether their scheme has the skills and capabilities needed to meet increasingly complex governance requirements, including making strategic decisions about the scheme's future and potential consolidation.

The trustee survey was also referenced in a speech made by Richard Knox, TPR’s Executive Director of Strategy, Policy and Analysis on Monday 9 November. Mr Knox, amongst other matters, highlighted that the survey found that the average overall governance “score” for schemes was just 62% and that this is lower than TPR would like it to be.

TPR intends to use the research as a baseline to monitor improvements in governance across the pensions market.

Government consults on guidance on trustees' investment duties

The DWP has launched a consultation on draft guidance intended to clarify how pension scheme trustees should apply their existing fiduciary and related duties when making investment decisions. The guidance has been developed by an industry technical working group chaired by Sir Robin Knowles CBE, with support from other expertise and experience across the pensions sector.

The guidance follows the February 2024 Financial Markets Law Committee (FMLC) paper on pension trustees' fiduciary duties in the context of sustainability and climate change (see Pensions Bulletin 2024/05), on which it expressly builds, and the Lords’ defeat of the Government’s amendment to the 2025-26 Pension Schemes Bill mandating statutory guidance (see Pensions Bulletin 2026/13).

The guidance explains how established legal principles apply to trustee investment decisions, emphasising members' best interests, informed judgement and a reasonable and proportionate decision-making process. Key principles discussed include:

• Trustees must exercise their powers lawfully and invest in the best interests of members, recognising that the purpose of the trust is to provide pensions over time.
• Investment decisions should reflect relevant time horizons, including the lifetimes of the scheme and members (likely to involve working with multiple time horizons).
• Trustees must take into account relevant matters, disregard irrelevant ones, and make informed judgements based on evidence, analysis and advice.
• Financially material considerations must be identified and taken into account, including risks and opportunities arising at investment, portfolio, system or economy level. These may include climate change, technological developments and other systemic factors.
• Some non-financial matters may be relevant in limited circumstances. Where they arise, trustees should consider taking advice on the appropriate approach.
• Trustees should also consider stewardship activities and, where appropriate, may act collectively with other investors and stakeholders to manage financially material risks and opportunities.
• Members’ views may inform trustees’ understanding, but responsibility for decisions remains with the trustees.
• Trustees may adopt a practical and proportionate approach, reflecting their scheme’s circumstances.
• Different trustee boards may reasonably reach different conclusions. A reasonable, well evidenced decision-making process provides legal reassurance and supports trustees in meeting their duties, without requiring systematic consideration of every conceivable factor.

The draft guidance has a much broader scope than the FMLC paper and provides more practical assistance on applying existing legal principles to investment decisions.

One notable development is the express recognition that the financial materiality of an investment decision may extend beyond its effects on the pension fund's assets to its potential impact on members’ future costs and circumstances of living. The guidance points out that the value of a pension depends partly on what it can buy, so these wider effects may be relevant where there is a clear enough link to members’ retirement outcomes. However, no specific approach to these considerations is suggested and it is not expected that trustees need to assess them for every investment decision.

The guidance also gives greater prominence to system-level risks and opportunities, including those associated with climate change, technology (including AI), inequality and wider economic developments. It recognises that pension funds may both be affected by, and contribute to, developments in the wider financial and economic systems in which they invest. This may make stewardship and collaborative engagement with other investors and stakeholders more relevant.

There is also more detail on what trustees should consider when choosing insurers or other providers for buyout or consolidation transactions, including how those providers invest over the longer term.

The guidance is non-statutory and is not intended to change trustees' existing legal duties or introduce new reporting or compliance requirements. Nevertheless, the DWP says that, once finalised, it expects trustees to have regard to the guidance where relevant. It also indicates that it may consider placing the guidance on a statutory footing in future, “once a suitable legislative opportunity arises”.

The consultation closes on 28 January 2027.

Finance Bill sets out changes to pensions tax

The Finance Bill 2026-27, as introduced to Parliament on 3 November 2026, legislates for the pensions tax measures announced in the recent Budget (see Pensions Bulletin 2026/44), including the authorised member surplus payment framework previously consulted on (see Pensions Bulletin 2026/28).

Clauses 24–29 and Schedule 4 cover the Pension Tax Allowance, member surplus payments, changes to death benefit taxation, medical evidence requirements and technical corrections following abolition of the lifetime allowance. Clauses 43 to 45 cover inheritance tax provisions relating to pensions.

Points worth highlighting are:

• Pension Tax Allowance – Clause 24 sets the maximum tax reduction available to those who have reached, or reach, state pension age during the tax year to be £94 in 2027/28, and 20% of the excess of the annual full new state pension over £12,570 in 2028/29 and 2029/30. It also confirms that the reduction tapers by £1 for every £3 by which total income exceeds the annual full new state pension. The Bill remains silent on what might happen to this deduction after 2029/30 – any extension would require further provision.
• Authorised member surplus payments – Clause 25 confirms the ability to award younger members a prospective right to a deferred payment, as qualifying conditions are tested when that right is first acquired. Payment must still meet the applicable minimum pension age or ill-health condition, unless made to a dependant after the member’s death. The provisions apply from 6 April 2027. There is as yet no sign of the safeguards to prevent avoidance that the Budget papers said will be in legislation. 
• Death benefit taxation –
  • Clause 26 removes the adverse tax treatment arising solely because payment of relevant lump sum death benefits, or funds designated for beneficiary drawdown, are made outside the two-year period following the Scheme Administrator’s reasonable knowledge of death, for payments made on or after 28 October 2026.
  • Clause 27 and Schedule 4 provide that the separate income tax charge on lump sum death benefits exceeding the available allowance generally applies retrospectively from 6 April 2024, with transitional provisions.
• Medical evidence – Clause 28 provides that the revised serious ill-health lump sum test and wider acceptance of overseas medical evidence take effect on Royal Assent.
• Inheritance tax relating to pensions – For deaths from 6 April 2027, clause 43 addresses charitable giving calculations involving pension benefits. Clauses 44 and 45 allow prospective personal representatives to direct schemes to pay inheritance tax before obtaining a grant of probate, providing a withholding notice has been received by the scheme administrator at least 28 days previously and the amount specified on the payment notice is at least £1,000.