DB surplus major flexibilities: the new regime takes shape

At its simplest, a pension scheme surplus means that the scheme has more assets than it expects to need to pay members’ benefits. However, the existence and size of any surplus depends on the funding basis used. A scheme may be in surplus on a low dependency basis, but not on a full buy-out basis.  The low dependency basis broadly indicates that the scheme is funded and invested so that, by the time it is mature, it should not need further support from the employer.  The buy-out basis sets out what it would cost to secure members’ benefits with an insurer.

DWP says around four in five DB schemes are now in surplus, with estimated aggregate surplus of around £160 billion. Others say this is an over-estimate. Whatever the figure, it is large and release of surplus is a hot potato!

In our July 2025 Pensions Compass article, “Part 2 – Surplus reforms”, we considered the Government’s proposals in the Pension Schemes Bill to make surplus payments to employers easier for ongoing DB schemes, and our later February 2026 article, “Part 3 – Buy ins, buy outs and surplus – lessons from Coca Cola” considered a specific court case and the reinsurance aspects that may arise in a historic buy-in.  Pension Schemes Act 2026 (Royal Assent 29 April 2026) contains the legislative framework and the draft Regulations needed to implement the Act’s “surplus” provisions for on-going schemes have now arrived.

DWP consultation

On 10 June 2026, DWP published its consultation on “Surplus Flexibilities for Defined Benefit Pension Schemes: Unlocking Value for Employers and Scheme Members.” The consultation seeks views on the draft Occupational Pension Schemes (Payments to Employer) Regulations 2027 and closes at 11:59pm on 2 September 2026.

Subject to the upshot of the consultation and to Parliamentary approval, DWP intends the Regulations to come into force on 6 April 2027. There are no transitional measures: any surplus release before April 2027 remains subject to the existing regime under the Occupational Pension Schemes (Payments to Employer) Regulations 2006. The 2006 Regulations would continue to apply for surplus payments on winding-up under section 76 of the Pensions Act 1995.

Current position

Under the current regime, paying surplus from an ongoing DB scheme to an employer is difficult. Broadly, trustees need a power in the scheme rules and, where relevant, that power must have been preserved by a section 251 resolution before the 2016 deadline. Schemes which did not have, or did not preserve, the relevant power are generally prohibited from paying surplus to an employer on an ongoing basis.

The Pension Schemes Act 2026 changes that position by giving trustees a statutory modification power. This will allow trustees to amend their scheme rules so that surplus can be paid to the employer, including where the scheme rules do not currently contain a usable surplus payment power or contain barriers to release. Importantly, this is not an automatic employer entitlement: the power sits with the trustees. The statutory power also entitles trustees to impose restrictions on the new power.

Low dependency replaces buy-out

The key policy choice in the draft Regulations is the scheme’s funding threshold. The current regime uses a buy-out basis. The new draft Regulations would move to a low dependency funding basis, aligned with the 2024 DB funding regime. The policy intention is that, by the time the scheme is mature, it should be largely independent of further employer support.

This is a major change. It makes surplus release potentially much more accessible because a scheme may be fully funded on a low dependency basis but still below full buy-out funding. However, that also means trustees will need to think carefully about whether release below buy-out creates unacceptable reliance on employer covenant or affects investment performance. Low dependency is a minimum threshold, not an instruction to pay out everything above that level. Trustees and employers will need to decide what buffer should remain in the scheme after the release.

The forward-looking test

The draft Regulations also introduce a forward-looking element. Before surplus can be paid, the actuary must be satisfied that the scheme is not only above the low dependency threshold at the time of release, but is expected to remain at or above that level over the following three years. More specifically, the actuary must be satisfied that the scheme’s assets are at least as likely as not to remain greater than its liabilities at any point over that three-year period.

The proposed surplus journey

The DWP’s illustrative surplus journey is not prescriptive, but it shows the likely shape of the process:

• Preparation — trustees and the employer check whether the scheme rules permit payments to the sponsor, or whether the new statutory power is needed.
• Actuarial assessment — trustees commission an actuarial assessment, either as part of the triennial valuation or at another time.
• Negotiation — trustees consider a provisional payment amount, take actuarial advice and may also seek covenant, investment and legal advice. The outcome may include an employer payment, member enhancements or one-off member payments, and a retained buffer.
• Member notification — members must receive written notice at least three months before the intended payment date.
• Final certification and payment — the actuary provides the required certificate, the employer consents, and the payment must be made within five working days of the certificate.
• Pensions Regulator (TPR) notification — TPR must be notified within one week after payment, including details of the funding position, employer payment and any member enhancements or authorised member surplus payments.

TPR and member benefits

TPR’s 10 June 2026 statement emphasises that trustees’ independence is unaffected. Trustees must decide whether surplus release is appropriate in the proper exercise of their fiduciary duties, should not be placed under undue pressure and should take appropriate advice, consider conflicts and document their reasoning.

The Government is not mandating that surplus must be shared in any particular way, or indeed that it be shared at all. However, DWP expects trustees to consider how members might also benefit where an employer surplus payment is being made. This could be through benefit improvements, discretionary increases or direct surplus payments to members. The tax framework is also being amended so that authorised member surplus lump sum payments can be made, although payments to members below Normal Minimum Pension Age would need to be deferred until that age.

Legal and practical issues

Scheme rules will still matter. The statutory modification power is helpful, but trustees will still need advice on existing surplus provisions, amendment powers, historic section 251 resolutions, restrictions in the rules, employer consent requirements and the interaction between ongoing and winding-up provisions. The new regime is aimed at ongoing surplus payments; schemes in wind-up remain outside these Regulations.

Fiduciary duties remain central. The express statutory “interests of members” test is being removed, but trustees must still act properly, take account of relevant factors, disregard irrelevant factors, manage conflicts and reach a rational decision. For many trustee boards, the harder question will not be whether the legal threshold is met, but whether release is appropriate and, if so, how much and on what terms – these are matters on which trustees and indeed employers will need legal advice.

The five-working-day payment window may be one of the more difficult operational points. It is designed to ensure the payment reflects up-to-date funding information, but trustees, employers, actuaries, investment advisers, administrators and banks will need to be closely coordinated. If markets move materially between the initial assessment, member notice and final certificate, the final amount may need to change or the payment may not proceed.

Member communications will also need care. Members will be notified of a proposed employer surplus payment at least three months before it is made. That notice may be sensitive, especially if members are not receiving equivalent benefit improvements. Clear communication will be needed on why trustees consider the payment appropriate, what protections remain and how fairness between different groups has been considered including deferred members and active members who cannot usually access pension benefits before Normal Minimum Pension Age.

Multi-employer and sectionalised schemes may raise additional issues around which employer should benefit, how surplus is allocated between sections, what consents are needed and how historic funding support should be taken into account.

What should trustees and employers do now?

The new regime is not yet in force, but trustees and employers can prepare by reviewing scheme rules and any section 251 resolution, understanding the scheme’s funding position on low dependency and buy-out bases, considering whether the long-term objective is buy-out or continuing to run the scheme on, and developing a surplus policy (referred to in TPR’s 10 June 2026 statement).

Trustees should also consider the buffer to be retained, whether members should share in surplus, the strength of the employer covenant, whether contingent asset support may be needed and whether the investment strategy supports the proposed approach. How far these matters should be recorded as “restrictions” in the resolution exercising the trustees’ new statutory power modifying scheme rules remains to be seen. Trustees will also need to consider whether data, administration, GMP equalisation and historic amendment issues are sufficiently clean before any money leaves the scheme.

Pensions Ombudsman upholds Executor’s claim to past pension payments

In the determination dated 8 May 2026 relating to the European Metal Recycling Limited Pension and Life Assurance Scheme (CAS -85140-P4M5) TPO considered different types of forfeiture clauses and reviewed case law such as Lloyds Banking Group Pensions Trustees Ltd v Lloyds Bank plc[1] (“Lloyds”), Punter Southall Governance Services Limited Group Pension Trust Ltd v Jonathan Hazlett[2] (“Axminster”), and CMG Pension Trustees Ltd v CGI IT UK Ltd[3] (CMG).  

Facts

The complaint was brought by Mr G, the executor of Mrs P’s estate, and concerned Mrs P’s spouse’s pension payable by the European Metal Recycling Limited Pension and Life Assurance Scheme (the “Scheme”).

Mrs P started receiving a pension from the Scheme following her husband’s death in 1996, but the payments stopped when she moved to Turkey in 2001. Mrs P continued to receive her other pension arrangements during that period.

In 2014, the newly appointed scheme administrator unsuccessfully attempted to trace Mrs P via the Department for Work and Pensions (DWP). It later transpired that the administrator had used the wrong date of birth when making the request.

In 2020, Mrs P died in Turkey. Shortly afterwards, Mr G notified the scheme administrator of her death and enquired about her potential benefits under the Scheme.

In 2021, the scheme administrator notified Mr G that it did not know why the Scheme stopped paying Mrs P’s pension in 2001, but explained that, under the Scheme rules, the trustees had a discretion to forfeit benefits that had not been claimed within six years of their due date (or eight years for GMP payments). The trustees had decided to exercise that discretion but agreed to pay the outstanding pension payments for the last six years (and eight years for GMP).

Mr G accepted the award but submitted a complaint under the Scheme’s internal dispute resolution procedure which was rejected at both stages of the procedure.

Complaint to TPO

Mr G’s initial complaint to TPO was not upheld by the Adjudicator, following which Mr G brought a further complaint. The central question for TPO was whether the Scheme’s rules permitted the trustees to forfeit benefits which had not been claimed within the relevant period.

Mr G relied on two main arguments:

• that Mrs P had a statutory right to a transfer under section 95(2) of the Pensions Schemes Act 1993, which could not be removed by the Scheme Rules or discretionary forfeiture; and
• that there is no statutory time limit to recover trust property from trustees, and therefore the forfeiture clause could not apply.

TPO upheld the complaint, although not on the basis of the arguments advanced by Mr G. He rejected the transfer argument, noting that Mrs P had already started receiving her pension and therefore no longer had a statutory transfer right. He also held that, while there is generally no statutory time limit for the recovery of trust property, this does not prevent trustees from relying on a valid forfeiture provision in scheme rules

Instead, the decision turned on the validity of the scheme’s forfeiture clause.

The Ombudsman’s decision

The relevant provision read:

“Section 25: Lien on benefits and forfeiture

(b) Forfeiture

Any monies payable out of the Plan and not claimed within six years from the date on which they were due to be paid may at the Trustees’ discretion may be used for any of the purposes of the Plan.”

TPO confirmed that while section 92(1) of the Pensions Act 1995 provides that an entitlement to a pension under an occupational pension scheme cannot be forfeited, section 92(5) and section 26 of the Occupational Pension Schemes (Schemes that were Contracted-out) (No 2) Regulations 2015 permit forfeiture in certain circumstances, where scheme rules contain an effective forfeiture clause. Thus, TPO turned to consider the validity of Section 25.

Applying the High Court’s reasoning in Lloyds, CMG and Axminster, the Ombudsman distinguished between two categories of clauses:

1. true forfeiture clauses, which extinguish or suspend a member’s entitlement; and
2. administrative provisions, which simply permit trustees to apply unclaimed monies elsewhere.

In CMG, the rules provided that unclaimed benefits “shall be retained” by the trustees. This wording was held to be such that paying unclaimed benefits would arguably result in a breach of trust. Accordingly, the clause was found to fall into the first category.

By contrast, in Axminster, the clause merely allowed trustees to apply unclaimed monies for other scheme purposes and was therefore held not to be a valid forfeiture clause: “Any monies payable out of the Plan and not claimed within six years (…) may (at the trustees discretion) be applied in…”.

Given the similarity between Section 25 of the Scheme and the Axminster clause, TPO held that a similar reasoning should be followed.

Although section 25 was labelled “forfeiture”, the Ombudsman focused on whether its operative wording was sufficient to deprive members of their entitlement, and found that, like the clause in Axminster, it merely allowed trustees to apply unclaimed monies for other purposes. The clause was therefore not an effective forfeiture provision.

TPO also considered the distinction between “missing beneficiaries” and “underpayment of benefits” cases. The crucial issue was that it was unclear why payments had stopped in the first place and that the Scheme was funded on the basis that Mrs P would be paid her pension until her death.  As such, the case was better viewed as one of underpayment of benefits, rather than a missing beneficiary case. This distinction is important as the courts (and the Ombudsman) are less willing to interpret provisions as allowing forfeiture where arrears have arisen due to an error of the trustees.

Finally, TPO noted the typographical error in Section 25 of the Scheme (repetition of “may”) and found that the power was expressed in discretionary rather than mandatory terms. While this did not automatically prevent the validity of the clause, it reinforced the conclusion that the clause did not operate to extinguish entitlement. 

Therefore, TPO upheld the Executor’s complaint and directed the trustees to pay the full arrears from 2001, together with interest.

Conclusion

The determination is not a departure from existing law, but it is a clear reminder of how strictly forfeiture provisions are scrutinised. The starting point remains that pension entitlements should be honoured unless the rules clearly and effectively provide otherwise.

For trustees, it is important to remember: if forfeiture is intended, the rules must say so in unequivocal and operative terms.

[1] [2018] EWHC 2839 (Ch).
[2] [2021] EWHC 1652 (Ch).
[3] [2022] EWHC 2130 (Ch).

Data protection – vulnerability of pension schemes

Processing sensitive and special category data increases the risks of data breaches. Pension schemes are attractive targets for cyber-attacks, for example, the attack suffered by Capita in March 2023. Schemes are exposed to significant financial and reputational risk. Last year the Information Commissioner’s Office (“ICO”) fined Capita £14m. The subsequent mass data protection claim brought by nearly 4,000 scheme members presents a substantial ongoing financial risk. 

Pension schemes often outsource administration of member data to third parties. These providers may, in turn, rely on other third-party processors, thereby increasing the risk of supply chain failures and information leaks leading to data protection breaches. However, pension scheme trustees remain responsible for compliance with data protection legislation. Trustees have a duty to ensure that member data is handled securely and in accordance with the legislation and the scheme’s governing documents. Failing to do so may expose trustees to regulatory intervention and complaints from members.

Trustees’ and administrators’ data protection duties: UK GDPR framework and fiduciary duties

Trustees’ and administrators’ data protection duties arise under the UK GDPR and the Data Protection Act 2018, other data protection legislation and the scheme’s governing documents.

In most cases, trustees will be controllers for the purposes of the UK GDPR, as they determine why and how the data is processed. Many of the third parties which help administer schemes are also likely controllers as regulated entities, required to process personal data to fulfil their statutory obligations. The precise allocation of roles and responsibilities will depend on the arrangements in place.

Controllers are responsible for compliance with the legislation. Their duties include identifying what personal data is processed and where it is held, implementing appropriate policies, procedures and security measures to protect that personal data and reviewing third parties appointed to process personal data on their behalf. To comply with the legislation, trustees must carry out appropriate due diligence before engaging third-party providers as processors. They must also implement written data processing agreements with those service providers.

The trustees’ obligations under data protection legislation also interact closely with trustees’ fiduciary duty to act in members’ best interests. This includes safeguarding members’ personal data and managing cyber and data protection risks. The Pensions Regulator expects trustees to put in place and operate adequate internal controls as a part of a governance framework proportionate to the size, nature, scale and complexity of the scheme. Trustees should:

• ensure cyber risks are on the risk register and regularly reviewed;
• regularly assess the vulnerability of the scheme’s key functions, systems and assets;
• implement appropriate policies, procedures and controls on data in line with data protection legislation;
• ensure regular system back-ups and secure storage of critical data;
• establish effective monitoring and controls over service providers; and
• maintain a data protection and cyber incident response plan.

Recent case law

Failing to adequately protect personal data can result in member complaints against the scheme trustees and administrators. The Data (Use and Access) Act 2025 requires organisations to put in place a procedure for dealing with individuals’ complaints about the handling of their personal data. For further details, see our data protection team’s article by clicking here. Recent cases demonstrate that trustees and administrators may be exposed to liability in a wide range of circumstances. 

In Farley v Paymaster[1], letters containing members’ personal data (in this case, former police officers) were sent to incorrect addresses. Despite there being no evidence that the data was accessed by third parties, the Court of Appeal held that there is no “threshold of seriousness” in data protection law, and that a loss of control over personal data may result in a viable data protection claim, provided that a claimant’s fear of third-party misuse is objectively well-founded. However, the scheme administrator has been granted permission to appeal to the Supreme Court, with the hearing currently listed for October 2026. 

Similarly, in Spurgeon v Capita Plc[2], an application was brought by around 4,000 individuals affected by the Capita 2023 cyber-attack. Capita argued that the claimants’ evidence had been irrevocably tainted by their lawyers on issue of loss and damage by relying on language such as “violation”, “tormented” and “betrayal of trust” which had not been used by the individual claimants themselves. The Court rejected that argument, holding that counsel has a wide latitude to determine how best to formulate pleadings, and it was legitimate to use repetitive or generic phrases in such circumstances. Trustees and administrators should note the increasing exposure to high value data protection claims.

Finally, in DSG Retail Limited v The Information Commissioner[3], the court confirmed that data controllers must safeguard personal data including where the individual unlawfully accessing that data may not be able to identify the data subjects and regardless of how it might be used or exploited by hackers. Although the case did not involve a pension scheme, the decision is a reminder for trustees and administrators that the obligation to implement appropriate security measures focuses on preventing unauthorised access to personal data itself, rather than on whether that access resulted in misuse or harm.

Overall, these cases demonstrate the low bar for bringing a data protection claim, as claimants do not need to prove that personal data was accessed or misused by a third party, or that they were harmed by the breach. Although individual awards of compensation are typically modest, there is an increasing number of high value collective-action claims. In addition, there remains a risk of intervention from the ICO. These decisions highlight the importance for pension scheme trustees and administrators to adopt a proactive approach to data protection and to put strong controls in place.  

[1] [2025] EWCA Civ 1117.

[2] [2026] EWHC 241 (KB).

[3] [2026] EWCA Civ 140.

Pensions Compass – June 2026

Please see our article below “Legislation blockbusters – an overview”. The Acts are only the beginning – many hundreds of pages of Consultations and Regulations will follow.

Scheme trustees and employers must also keep up to date with other current pension matters – there are a great number. See our Ready Reckoner which highlights  key developments from Parliament, the Courts, the Pensions Ombudsman, PPF, DWP and TPR and the Dashboards Programme.

CONTENTS

• Legislation blockbusters – an overview; Clive Weber surveys the new landscape
• Business transfers and pensions;  Justin McGilloway and Alexia John review the latest from the High Court
• Artificial intelligence in Pensions Law; James Newcome provides human comment
• Pensions Ready Reckoner; table of key developments in Parliament, the Courts and from elsewhere

Any queries, please be in touch with your usual Pensions team contact.

Find pensions terminology confusing? See our glossary here.

Pensions Ready Reckoner – June 2026

 

PARLIAMENT	Effective Date	Effect
Recent Acts
FINANCE ACT 2026	Royal Assent 18 March 2026	The Bill was introduced in Parliament following the Budget on 26 November 2025. Inheritance Tax on certain death benefits under registered pension schemes applies for deaths on or after 6 April 2027. Click here for our Bulletin published on 19 March 2026 and here for the article in Part 1 of this Pensions Compass.
NATIONAL INSURANCE CONTRIBUTIONS (Employer Pensions Contributions) Act 2026	Royal Assent 29  April 2026	The Act empowers the making of Regulations, so that with effect from 6 April 2029 employer and employee NICs apply to amounts of salary sacrificed for employer contributions where the sacrificed amount exceeds £2000.
PENSION SCHEMES ACT 2026	Royal Assent  29 April 2026	The Act includes new rules for surplus extraction for DB schemes; consolidation of DC small pots; value test for DC arrangements; large DC schemes consolidation; trustees of certain DC occupational schemes to provide retirement solutions including default investment options; and permanent structure for commercial superfunds. Click here for articles in July 2025 Pensions Compass. The Bill also facilitates relevant schemes handling “Virgin Media” issues. Click here for the article in Part 1 of February 2026 Pensions Compass and here for the article in Part 1 of this Pensions Compass.
GMP Conversion – Conversion of GMPs Act (Royal Assent 28/4/2022)	Not yet in force	Enables GMP conversion once relevant Regulations made. Still awaiting DWP’s Consultation on draft Regulations. Click here for article in June 2022 Pensions Compass.
Data (Use and Access) Act 2025	Royal Assent 19 June 2025	Various reforms, including strengthening powers of the Information Commissioner. Most of the Act’s provisions come into effect on dates to be appointed. Some took effect on Royal Assent including those relating to searches for data subject access requests. New provisions for the handling of data protection complaints apply from 19 June 2026. Click here for our article published 14 May 2026.
Finance Act 2025	Royal Assent 20 March 2025	Overseas transfer charge: transfers to QROPs in EEA or Gibraltar no longer excluded from overseas transfer charge; conditions of OPS and ROPs established in EEA aligned with OPS and ROPs established in rest of the world from 6 April 2025; and as from 8 April 2025, scheme administrators of registered pension schemes must be UK resistant.
Finance Act 2024	Royal Assent 22 February 2024 with effect from 6 April 2024	Replaces Lifetime Allowance with new Lump Sum Allowance and Lump Sum and Death Benefit Allowance. Click here for the article in Part 4 of June 2024 Pensions Compass.
Pensions (Extension of automatic Enrolment) (No 2) Act 2023	Royal Assent 18 September 2023	Regulations awaited.

 

NB Future Acts – Draft legislation for Finance Bill 2026/2027  expected to be published July 2026, including taxation of DB surplus paid to members.

Recent and forthcoming Regulations
Regulated Activities (Providing Targeted support)(Amendment) Order	Enabling providers to give targeted support to consumers on investments and pensions. The Regulations came into force (completely) on 6 April 2026.
Collective Defined Contribution (CDC) Regulations for schemes with unconnected employers	The DWP consultation closed on 19 November 2024. Tht CDC Regulations were laid before Parliament on 27 October 2027 and  come into force on 31 July 2026.
GMP Conversion Regulations	Consultation on draft Regulations still awaited		See above under Conversion of GMPs Act
Notifiable Events Amendment Regulations	Timing unknown		Additional Events to be notified to TPR and to scheme trustees (change in control of an employer, sale of material proportion of business or assets and/or granting of certain security rights). DWP’s Consultation on these proposed controversial Regulations closed on 27 October 2021 and it seems DWP have stopped work on these Regulations.  Click here to listen to our December 2021 Podcast.
Extension of Automatic Enrolment Regulations	Timing uncertain		See above under Pensions (Extension of Automatic Enrolment) (No. 2) Act 2023
Transitional Regulations relating to the change in Normal Minimum Pension Age (NMPA) from age 55 to age 57 on 6 April 2028	Consultation on draft Regulations awaited		Important Regulations to ensure the change in NMPA on 6 April 2028 works fairly. HMRC Newsletter 180, April 2026, gives some information on the new regulations.
HMRC further Regulations re abolition of the lifetime allowance and calculating the new Lump sum Allowances	Regulations expected to be made by Summer 2026.	These Regulations cover various outstanding queries on the calculation of the Lump Sum Allowance and the Lump Sum Death Benefit Allowance. These Regulations were laid in Parliament in early June 2026.
HMRC Regulations on information sharing between PRs, PSAs and members in context of IHT on certain pension benefits and unused pension pots.	HMRC short Technical Consultation published 18 May 2026.	Click here for the article in Part 1 of this Pensions Compass
Retained EU Law Regulations	Made on 17 September 2024 and came into force on 18 September 2024	The provisions enabling the UK courts to depart from retained EU case law more easily are revoked whilst the present government considers its position
Regulations under Pension Schemes Act 2026	Taking effect gradually during 2027 and onwards		Numerous Regulations are expected underpinning the headline changes in Pension Schemes Act 2026. Click here for the article in Part 1 of this Pensions Compass.
Regulations under the NIC (Employer Contributions) Act 2026	By 6 April 2029		These Regulations will be consulted on and will provide the detailed machinery for applying and calculating the £2000 cap.in relation to sacrificed contributions.
Authorised Surplus Payments Charge (Variation Rate) Order 2024	6 April 2024		Reduces the amount of tax due on authorised surplus repayment from 35% to 25%. Click here for the article in Part 1 of December 2023 Pensions Compass.
Regulated Activities Amendment Order – Operators of pensions dashboards	11 March 2024		The Order authorises the Financial Conduct Authority to regulate commercial operators of pensions dashboards. Such operators must either be or become authorised by the FCA.
Pensions Dashboards Amendment Regulations 2023	9 August 2023		The December 2022 Regulations specified statutory connection deadlines. However, there were IT connection problems. The August 2023 Pensions Dashboards Amendment Regulations amended the December 2022 Regulations and specify a single statutory connection deadline of October 2026 with staging to be included in Guidance as published on 25 March 2024. Click here for the article in Part 3 of June 2024 Pensions Compass and here for the article in Part 4 of February 2026 Pensions Compass.

 

FROM THE COURTS	RECENT DECISIONS
TUPE Transfers McKavney v Serco Group High Court 10 March 2026	The High Court upheld the Pension Ombudsman’s conclusion that the TUPE Transfer did not amount to the member being “compulsorily retired from service by his Employer due to redundancy or reorganisation” within the meaning of the particular scheme rules.  Click here for the article in Part 2 of this Pensions Compass.
Data Protection Spurgeon & others v Capita High Court 9 February 2026	Many scheme members alleged data breaches by the scheme’s administrator Capita, following a cyber attack on Capita in 2023.  The High Court dismissed Capita’s action to strike-out these claims. Footnote:  another case on data security, albeit in the retail rather than pensions field, is the “DSG” case.  On 19 February 2026, the Court of Appeal decided the retailer was required to take appropriate security measures to protect data from unauthorised access, regardless of whether people could be identified from the data obtained by the hackers.
Settlement of issues and Rectification Places for People Group Retirement Benefit Scheme High Court 19 December 2025	The High Court “blessed” the proposed settlement of issues including some Virgin Media section 37 issues; and ordered Rectification of various scheme documents including certain documents incorrectly executed.
Interpreting amendment power 3i plc v Decesare High Court 21 November 2025	The High Court decided that the scheme’s amendment restriction not to diminish the “accrued rights or interests” of members in respect of “benefits already provided” did not apply to future service benefits. This paved the way for proposed amendments.
Pensions Liberation Brambles v Harvey High Court 14 November 2025	High Court upholds Pensions Ombudsman decision re test for trustee dishonesty and that the trust was a single trust, not separate sub trusts.
Corporation Tax (CT) deduction disallowed A D Bly v HMRC Court of Appeal 14 November 2025	Deduction disallowed for employer contributions to an unfunded unregistered pension scheme. The Court of Appeal decided the main purpose was to obtain a CT deduction and therefore the contributions were not an allowable business expense, decisions of lower Courts upheld.
Enforcing debts against pension benefits Zubarev v Singh High Court 3 September 2025	The wording in the personal pension schemes could not be regarded as protecting pension benefits in the same way as under section 91 (5) Pensions Act 1995 which applies to occupational pension schemes. The court also considered the timing impact of third-party debt Orders.
Meaning of SPA (State Pension Age) in scheme rules Spirit (Legacy) Pension Trustees Limited v Alexis       High Court 1 September 2025	Disagreeing with the Pensions Ombudsman, the High Court ruled the particular SPA wording meant SPA was static – the SPA when the scheme rule was adopted and not the SPA when the member subsequently retired
Settlement of Issues KO UK Pension Trustees v Coca Cola                High Court 8 August 2025	The Court “blessed” the proposed variation of a buy-in contact and proposed use of scheme surplus.  Click here for the article in Part 3 of February 2026 Pensions Compass
Data Protection Farley v Paymaster (trading as Equiniti) Court of Appeal 22 August 2025	Some 400 police officers were sent annual benefit statements containing personal data including dates of birth and national insurance numbers; these were sent to out -of -date addresses. Claims were brought for compensation. In February 2024 the High Court struck out the claims as having no real prospect of success. On 11 July 2024 the Court of Appeal concluded that one of the grounds was reasonably arguable. On 22 August 2025 the Court of Appeal decided that proof that incorrectly addressed benefit statements were opened and read was not needed. Case remitted to High Court to decide whether in each case there was any damage to be compensated. Footnote – on 10 November 2025 Paymaster was granted permission to appeal to the Supreme Court on whether the police officers had a reasonable basis for compensation, with a realistic prospect of success at trial. The Supreme Court hearing is listed for 7 and 8 October 2026.
TPR Contribution notice upheld against director and shareholder Pelgrave v TPR      Upper Tribunal High Court 1 August 2025	Another win for TPR under the Pensions Act anti-avoidance provisions. Click here for the article in Part 1 of October 2025 Pensions Compass.
Creditor’s rights against SIPP benefits   Century Property v Aldiss   High Court 24 June 2025	High Court ordered judgment could be enforced against SIPP benefits. (Not possible where occupational pension scheme – see Manolete Partners v White, below).
Correction of scheme document by Court by interpretation   Renishaw v Ross Trustees   High Court 23 May 2025	Where the language has clearly gone wrong and it is clear what was meant, the Court can correct a document as matter of interpretation – so the Court corrected the drafting of a money purchase underpin, having considered a confidential Counsel’s opinion.
Equality Act 2010    For Women Scotland Ltd v Scottish Ministers   Supreme Court 16 April 2025	Supreme Court decides that references to ‘man’ ‘woman’ and ‘sex’ in the Equality Act 2010 and key provisions in Gender Recognition Act 2004 refer to biological sex, not ‘certificated sex’ of an individual under a gender recognition certificate.
Scheme sanction charges (Finance Act 2004) Morgan Lloyd Trustees v Revenue and Customs Commissioners Upper Tribunal 25 March 2025	The Upper Tribunal upheld most of the tax charges against the scheme administrators in respect of unauthorised payments made to the sponsoring employers (purchase of intellectual property rights for inadequate value). The Upper Tribunal decision also ruled on time limits and the conditions on which scheme administrators can be discharged from liability for scheme sanction charges.
Limitation – continuing duty not upheld Philips v National Grid Gas High Court 24 March 2025	Although the court held there was no continuing duty, it decided that the action could continue due to the employer’s failure to obtain a promised further medical opinion.
Amendments (schemes’ merger) Arcadia Group Pension Trustees Limited v Smith High Court 3 February 2025	The High Court approved the proposed merger of 2 registered pension schemes and reviewed scheme trustees’ fiduciary duties in context of the proper purposes of the scheme. Click here for the article in Part 4 of April 2025 Pensions Compass.
Creditor’s right to enforce pension drawdown dismissed Manolete Partners PLC v White Court of Appeal 15 November 2024	Whether the Court should direct a member, a former director of a company, to draw his pension to satisfy a judgment debt owing to a creditor  for breach of director’s duties. On 16 March 2023 the High Court so ordered saying that section 91(2) Pensions Act 1995 was no bar as the member was to be paid his pension, albeit it would then be used by his creditor. On 15 November 2024 the Court of Appeal reversed the High Court’s decision, holding that such an order infringed section 91(2) Pensions Act 1995 which says that an order cannot be made to restrain a member from receiving a pension due under an occupational pension scheme. The position seems to be different in relation to enforcing a debt against SIPP benefits – See also Century Property v Aldiss, High Court 4 June 2025.
Rectification: Ballard v Buzzard High Court 4 November 2024	The High Court accepted that a signature on behalf of the employer to a rule change could in the circumstances be accepted as also being a trustee’s signature
Cohabitation under the LGPS rules Thomas v Southwark Council High Court 31 October 2024	Successful appeal against Pensions Ombudsman’s determination re meaning of cohabitation.  Click here for the article in Part 1 of December 2024 Pensions Compass.
Validity of amendments in absence of section 37 actuarial written confirmation Virgin Media v NTL Pensions 25 July 2024	Virgin Media asked the High Court to decide whether certain scheme amendments relating to revaluation were valid. It was argued the scheme amendments affecting contracted -out benefits should have been accompanied by written actuarial confirmation under section 37 Pension Schemes Act 1993. The Court was asked to assume there was no actuarial confirmation. On 16 June 2023 the High Court decided that, in the (assumed) absence of written actuarial confirmation, the amendments in question were void. On 25 July 2024 the Court of Appeal unanimously upheld the High Court’s decision.  Click here for the article in Part 3 of October 2024 Pensions Compass and here for the update in Part 4 of July 2025 Pensions Compass on Announcement 5 June 2025. Click here for the article in Part 1 of February 2026 Pensions Compass on the Government’s “Virgin Media” amendments to the Pension Schemes Bill, reflected in the finalised Pension Schemes Act 2026.
Employer’s appeal about alteration powers BBC v BBC Pension Trust & Another 9 July 2024	On 28 July 2023 the High Court decided that, based on the scheme rules, members’ “interests” extend to future benefits as well as past. On 9 July 2024  the Court of Appeal unanimously upheld the High Court decision. Click here for the article in Part 3 of October 2024 Pensions Compass.
Final salary underpin Avon Cosmetics v Dalriada & Others 17 January 2024 and 19 February 2024	Using “severance” principles the High Court upheld the switch to CARE benefits for future service, but for past service members should receive the better CARE and Final salary linked benefits underpin. On 19 February 2024 the Court approved a compromise agreement as to the underpin’s effect. Click here for the article in Part 5 of March 2024 Pensions Compass.
Newell Trustees v Newell Rubbermaid High Court 23 January 2024	In context of conversion to money purchase, the High Court upheld the final salary underpin but based on actuarial value. Click here for the article in Part 5 of March 2024 Pensions Compass on this interesting decision.

 

 

FROM THE COURTS	FUTURE CASES
Scheme amendments Verity Trustees Ltd v Wood High Court February 2025	Application by the sole trustee of the Pensions Trust requesting Court directions about restrictions on the scheme’s amendment power. This MAJOR case lasted many weeks. It involves the scope and effect of a scheme amendment power. The High Court was also asked ancillary questions about the Court of Appeal’s Virgin Media decision, see above. Due to the complexity and amount at stake, judgment in Verity is not expected until Spring 2026 at the earliest. It may be the Court will not rule on Virgin Media issues.
Various Part 7 Claims against Verity Trustees Ltd	We understand some employers participating in the Pensions Trust have brought claims against the trustee alleging breach of duty, and that these claims have been stayed pending the outcome of the above High Court proceedings.
Value of Investments Legal and General Assurance and Others v Glencore PLC High Court 2025	Following Glencore admitting in the US courts various violations, L&G and 4 of its funds have lodged a Part 7 claim against Glencore  we understand judgment has been given but has not yet been released.
NB. Supreme Court hearing listed for 7 and 8 October 2026 – see above under “Recent Decisions” in “Farley”
PENSIONS OMBUDSMAN	RECENT DECISIONS
Incorrect distribution of scheme death benefits Mrs R – Wellcome Trust Pension Plan 18 March 2025	The PO decided the scheme trustees had not made sufficient appropriate enquiries about who was financially dependent on the deceased member.  Matter remitted back to the scheme trustees to decide again.
Duty to properly investigate potential death benefit beneficiaries Ms N – Reassure Personal Pension Plan 25 September 2025	A salutary reminder to identify all potential beneficiaries, to be alert to fraud and to make all appropriate enquiries. The complaint was upheld and the matter remitted to the scheme administrators to have another go! The deceased member died in 2018 – some 7 years later the distribution of death benefits remained unsettled.
Suspension of spouse’s pension MSE – NHS pension Scheme 16 July 2025	PO dismissed widow’s complaint that the suspension conflicted with her rights under the European Convention on Human Rights, incorporated into UK law by the Human Rights Act 1998.
Recovery of overpayments by recoupment from future pension payments Mr and Mrs D and Trustees of BIC UK Pension Scheme 20 June 2025	The PO decided it was inequitable for the scheme trustees to recover the lion’s share of the overpayments.  Paragraphs 41 to 55 of the PO’s decision gives useful guidance on the PO’s general approach to recovery of overpayments.
Complainants must act in good faith Mrs N – Teachers Pensions Scheme 5 September 2025	The Pensions Ombudsman dismissed the member’s complaint. The initial pension statement was expressively stated to be an ”interim award” and that the scheme was awaiting employer confirmation.
Statutory and discretionary Transfers to scam schemes	The PO has made various decisions on member attempts to recover losses in fraud and other circumstances.

 

PPF
PPF Levy changes	DWP has considered changes to the PPF legislation e.g. to enable ‘nil’ PPF levies if appropriate. Relevant provisions are in the Pension Schemes Act 2026. On 11 September 2025 the government announced provisions to abolish the PPF Administration Levy and these provisions are also in Pension Schemes Act 2026.
PPF Levy Rules for 2026/2027	The PPF’s Consultation on the Levy rules closed on 5th January 2026. The zero conventional PPF Levy for 2026/2027 is reflected in Pension Schemes Act 2026. The PPF will continue to levy what it expects to be a low Levy for alternative covenant schemes.
DWP
DWP Policy on scale measures in Pension Schemes Act 2026	The 9th March 2026 Guidance sets out the DWP’s policy principles on the Act’s scale measures, as an overview ahead of Consultation on proposed Regulations. TPR’s Guidance on the same date complements DWP’s Guidance, see below.
Consultation on Retirement CDC schemes	On 23 October 2025 the DWP issued its Consultation on its policy proposals for Collective Defined Contribution schemes for pensioner members only. This would enable individuals with DC pots to transfer their pots at retirement into a pooled fund with subsequent adjustments based on eg investment returns. Such schemes are likely to operate within Master Trusts or unconnected multi- employer schemes. The DWP Consultation closed on 4 December 2025.
Trust – based pension schemes: Consultation on strengthening Trustee boards and Governance	On 15 December 2025 DWP published its Consultation. This is prompted by the likely emergence of new types of schemes in the next few years, scheme consolidation, and other changes in the pensions landscape such as the government’s promise to produce Guidance on fiduciary duty in the context of wider factors including systemic risk (such as climate change). The Consultation closed on 6 March 2025.
Small Pots Delivery Group Report	On 24 April 2025 the group report was released, setting out plans and a timetable for consultation re consolidation of small deferred DC pots (click here for the article in Part 3 of July 2025 Pensions Compass). Provisions are now in the Pension Schemes Act 2026.
Treasury
DB Surplus – new statutory power to pay to employers	See the provisions in the Pension Schemes Act 2026. Click here for the article in Part 2 of July 2025 Pensions Compass.
Government Pensions Review (Mansion House Reforms)	Part 1 of the Pensions Review was published on 29 May 2025, see above under Pensions Investment Review. Part 2 of the Pensions Review started in July 2025 including the announcement of a new Pensions Commission.
TPR
TPR Guidance re AI	On 20 May 2026 TPR published its expectations for how trustees should govern the uses of artificial intelligence.
TPR Guidance re Virgin Media remediation	On 26 March 2026 TPR published guidance to scheme trustees including that “You will normally need to seek advice and confirmation from your legal adviser…” Footnote – the Financial Reporting Council also published useful advice in January 2026, finalised May 2026.
TPR Guidance on new scale requirements for DC master trusts	TPR’s Guidance on 9 March 2026 complements the DWP Guidance on the same date, see above.  TPR’s aim is to give schemes a heads-up for developing credible growth plans.
TPR and Financial Conduct Authority (FCA) joint consultation on the VFM (value for money) framework for trust and contract-based DC default arrangements	The Consultation opened on 9 January 2026 and closed on 8 March 2026. The government will consider the responses in connection with regulations under the Pension Schemes Act 2026. For contract – based schemes the FCA will amend the FCA’s handbook.
Revised Administration Guidance	On 9 December 2025 TPR published its revised administration guidance to help trustees and administrators deliver high quality services. This replaces TPR’s previous guidance entitled Administration of a DC Scheme, and applies to all scheme types.
TPR Consultation on its Enforcement Strategy.	The Consultation opened on 16 September 2025 and closed on 11 November 2025. TPR describes its proposed new Enforcement Strategy as a “deliberate move towards smarter, collaborative, and risk- based interventions that deliver real-world results.” Footnote: In February 2026 TPR sent a warning notice to Smiths News Plc saying it is considering a financial support direction against Smiths News and others re a former subsidiary of Smiths News
TPR decision re surplus – Littlewoods Pension Scheme	On 3 June 2025 TPR published the terms of its Determination modifying scheme rules of the Littlewoods Scheme to give the trustees power to return surplus to the employer on the winding up of the scheme.
DB Schemes Statements of Strategy	On 28 May 2025 TPR announced it would provide statements of strategy spreadsheets and was launching its “Submit scheme valuation” digital service. Click here for the article in Part 2 of October 2024 Pensions Compass
DB Schemes: Employer Covenant Guidance	TPR published its guidance on 4 December 2024 and published its finalised views on 28 May 2025 as part of its response to its Consultation on Statements of Strategy.
DB Scheme Fast Track submission tests and conditions	On 2 November 2024 TPR publish the fast – track rules for DB schemes with Valuation dates on or after 22 September 2024.
HMRC
IHT and Pensions	On 11 May 2026, HMRC published a technical note. On 18 May 2026, HMRC issued a Technical Consultation on draft information sharing regulations and on various ancillary forms. Later this year/early next year, there will be further guidance and updating of HMRC’s Tax Manuals. Click here for the article in this Pensions Compass.
Abolition of Lifetime Allowance	Further Regulations clarifying various aspects of the Abolition and the Lump Sum Allowance and Lump Sum Death Benefit Allowance are expected soon.
Tax treatment of DB surplus shared with members	The draft legislation for Finance Bill 2026/2027 is expected to include new tax provisions re the tax treatment of surplus shared with members.
Modernising and mandating tax adviser registration	Finance Act 2026 requires registration of tax advisers who interact with HMRC on behalf of clients. Further Guidance from HMRC is expected.
PENSIONS DASHBOARDS
Staging Guidance	Originally issued by DWP on 25 March 2024 and subsequently updated. Click here for the article in Part 3 of June 2024 Pensions Compass and here for the article in this Pensions Compass. The first schemes have met their April 2025 staging dates. As 2026 progresses it remains to be seen whether relevant schemes continue to meet their Staging Guidance as the number of schemes seeking connection builds in line with the Guidance. The deadline for all relevant schemes remains 31 October 2026 as per the legislation.
Voluntary Connection	Guidance July 2025
Data Protection Impact Assessment	Issued by the Pensions Dashboard Programme, June 2025. This includes descriptions of how systems will work in practice.
PASA’s Toolkit for AVCs	Guidance from PASA re practicalities of connecting to dashboards re AVCs.
Pensions Dashboards Programme (PDP) –  Technical Standards	Technical Standards have been published relating to reporting, data, and connection, containing mandatory requirements for the interaction of parties and their interaction with the PDP’s central digital architecture. On 28 January 2026 a Consultation on updating the Reporting standard was issued. The Consultation closed on 30 April 2026.
TPR’s Pensions Dashboards Compliance and Enforcement Policy	On 5 September 2024 TPR published its Policy in this area including examples of TPR’s approach in 4 scheme scenarios.
TPR – Updated Guidance and Checklists for trustees	On 23 April 2026, TPR issued updated Guidance and Checklists in connection with Pensions Dashboards.

AI in Pensions Law – opportunities and risks

However, the growing use of AI in the pensions industry also raises significant risks. Legal questions rarely turn on a single provision in a scheme’s governing documentation or an isolated piece of legislation.  Issues will often depend on complex interactions between historic scheme documentation, trust law principles, statute and case law.  An AI tool may produce a seemingly plausible answer, but if it has not understood the scheme-specific and historical context, that answer may be incomplete or wrong.

This is the central challenge for trustees and their advisers.  AI can be a useful aid.  It is not, and should not, be treated as a substitute for legal judgement.  This article considers some of the key pitfalls associated with AI in pensions law and why human judgement remains essential.

1. Benefits of AI in the pensions industry

The benefits of AI should not be understated. Industry guidance, including from the Pensions Administration Standards Association (PASA) identifies a number of areas in which AI can assist, including predictive analytics, automated documentation, data processing and member communications[1].

In practice, AI can reduce time spent on routine administrative tasks, identify inconsistencies or gaps in member records and support fraud detection by spotting unusual patterns more quickly than traditional processes. It may also help trustees, administrators and advisers work through large volumes of information more efficiently.

AI is also being used to support member communications, for example through chatbots responding to common factual queries. Used carefully, AI may therefore free up human resource to focus on more complex work.

However, these advantages do not mean AI is a substitute for legal analysis.

2. General risks associated with AI

Many of the risks associated with AI are now well known, but they take on a particular significance in a legal and pensions context.

• Lack of transparency: AI systems can be opaque, making it difficult to understand how an answer has been reached, test the underlying reasoning or demonstrate that an appropriate decision-making process has been followed.
• Hallucinations: AI may produce answers that sound authoritative but are in fact incorrect, incomplete or entirely fabricated.
• Context insensitivity: Legal analysis often turns on small but crucial details. AI tools may miss or misunderstand these nuances.
• Data quality, data protection and confidentiality: AI outputs are only as reliable as the data and inputs provided to the model. Poor quality data can produce poor quality outputs, while the use of member data or confidential scheme documents also raises obvious data protection and confidentiality concerns.

3. Risks specific to pensions law

These general risks are magnified in pensions law because of the structure of the subject matter itself. Occupational pension schemes are often governed by a long chain of documentation stretching back decades. The answer to a current question may require the reader to track how a power was drafted originally, whether and how it was amended, how statutory requirements applied at the relevant time and whether later case law changes the analysis. In many cases, the right answer cannot be reached without understanding the full legal and historical context.

This creates real risk for employers, trustees, administrators and members who use AI as if it were a source of legal advice. A tool may produce a neat summary of the law, but if it has not correctly interpreted the specific scheme documentation or the relevant legislative provisions, the conclusion may be misleading. Worse still, the output may on the surface look plausible, and the error may not be spotted until a decision has been taken or a member communication has been issued.

a) Risks for trustees and administrators

Trustees’ fiduciary and statutory duties do not change because AI is being used.  Responsibility for decisions affecting the scheme and its members remains with the trustees. If trustees rely on AI-generated interpretations of their powers or obligations without proper scrutiny, they may expose themselves to regulatory criticism, disputes and potentially claims for breach of trust.

This is not a purely theoretical point. Even apparently simple questions in pensions law require careful scheme-specific analysis. For example, does the scheme contain an augmentation power and how is it exercised? Can a particular category of member be included in an exercise? What is the correct interpretation of a historic amendment? Is a trustee discretion fettered by the rules or by wider legal principles? Can the scheme be wound up in the manner proposed? These are not questions that can safely be answered by pattern recognition alone.

The same applies where AI is used by administrators or other service providers. Trustees should understand what AI is being used for, what its limitations are, what data sits behind it and where human review will take place. As TPR explains in its statement published on 20 May 2026, trustees ‘remain accountable for outcomes even when activities are delegated’. Material decisions still need to be taken by people who understand both the legal framework and the scheme in question.

b) Risks to employers and members

The risks of AI are not only confined to trustees and administrators. Employers may use AI as a means of understanding their obligations under scheme documentation, section 75 debt legislation, consultation requirements or transaction-related pensions issues. Members may use publicly available AI tools to assess their benefit entitlements, transfer options or to assist with raising complaints. In all these cases, there is significant scope for error.

That is because generic AI answers are particularly likely to miss the scheme-specific features that matter most. A member may be told that they have a right which does not in fact exist under their scheme’s rules. An employer may be given an over-simplified answer that ignores the documentary history or the interaction between trust law, legislation and case law. Administrators may also be tempted to rely on AI-generated wording which inadvertently creates expectations or appears to promise benefits beyond those actually provided under the scheme. The result may be complaints, disputes and avoidable cost.

Conclusion

AI undoubtedly has an important role to play in the pensions industry, particularly in relation to administration, driving efficiencies and data analysis. However, pensions law is an extremely challenging environment for AI because legal outcomes so often depend on detailed scheme documentation, historical context and nuanced legal interpretation.

The real danger is not simply that AI may get the law wrong. It is that employers, trustees, administrators and members may not realise that it has got the law wrong until after action has been taken in reliance on the answer. That is why AI should be treated as an aid, not a substitute for specialist legal advice. Where legal rights, trustee powers and member benefits are concerned, careful human analysis remains essential. AI can assist but it cannot replace the scheme-specific legal analysis and professional judgement that remain essential in a rapidly changing environment.

 

[1] PRESS RELEASE – PASA publishes new ‘Data for AI’ Guidance to help the industry embrace innovation responsibly – The Pensions Administration Standards Association

TUPE Transfers are not retirement: High Court clarifies early pension triggers

Background

Mr McKavney was a protected person under the Electricity (Protected Persons) (England and Wales) Pension Regulations 1990 (the EPP Regulations) and was originally employed by Magnox Electric Ltd.

In 2005, his employment transferred from Magnox to Serco under TUPE. He subsequently elected to transfer his pension benefits into the Serco Pension and Life Assurance Scheme (SPLAS). Specific provisions in Section F of the SPLAS applied to former Magnox employees and were expressly intended to mirror the protections provided under the EPP Regulations

In 2012, Mr McKavney’s employment transferred again under TUPE from Serco to ESRC. ESRC was later acquired by AMEC, as a result of which ESRC ceased to be a participating employer in the SPLAS and instead participated in the AMEC pension scheme (ASPS).

Mr McKavney chose not to exercise his statutory right to transfer his benefits from the SPLAS to the ASPS within two years of the TUPE transfer. Consequently, his active membership of the SPLAS came to an end, and he became an active member of the ASPS from 1 July 2012.

In 2015, aged 56, he was made redundant by ESRC. He received an immediate unreduced pension from the ASPS, but no early payment of his benefits under the SPLAS.

Mr McKavney brought a complaint to TPO, arguing that the 2012 TUPE transfer and the subsequent acquisition of ESRC by AMEC amounted to compulsory retirement and / or a reorganisation of the employer’s business under the rules of the SPLAS, entitling him to early payment of his SPLAS benefits.

TPO Decision

TPO rejected the complaint on the basis that, in the context of the SPLAS rules, being retired meant to “stop working” or to “leave one’s job” (para 46) and that the cessation of active membership alone did not qualify as “compulsory retirement from service”. In Mr McKavney’s case, the TUPE transfer preserved the continuity of employment and therefore did not constitute a “compulsory retirement from service” under the scheme rules.

TPO also noted that Section F was intended to be consistent with the EPP Regulations, which confer a two‑year statutory right to transfer accrued benefits rather than providing for automatic payment of benefits on transfer (Regulation 6(5)). This reinforced the conclusion that a TUPE transfer was not intended to trigger early payment of benefits.

High Court decision

The Appeal turned on the proper interpretation of Section F of the SPLAS rules. Applying the principles in Buckinghamshire v Barnado’s [2018] UKSC 55, [2019] ICR 495, the Court focused primarily on the language of Section F, construed in light of the EPP Regulations.

The Section F rules provided for early unreduced pension payments in certain circumstances, including:

• Sub rule 4.2.1.3: “on or after age 50 where the member is compulsorily retired from service by his Employer due to redundancy or a reorganisation of the Employer’s business”; and / or
• Sub rule 6.2.3.1: “(…) where the Magnox Members’s Service ended (…) due to redundancy or a reorganisation of the Employer’s business”.

Mr Justice Trower accepted that the meaning of retirement could depend on the context. However, in this case, Sub-rule 4.2.1.3 required the member to have been “compulsorily retired”, which implied an “involuntary termination of that Member’s contract of employment with the Employer” (para.84). A TUPE transfer involves no termination of employment but instead operates so that the contract continues as if originally made with the new employer. Therefore, it did not satisfy this requirement.

Although this conclusion was sufficient for sub-rule 4.2.1.3 not to apply, the Court also held that there had been no “redundancy” and no “reorganisation” of the kind contemplated by the rule.

The court further held that Sub-rule 6.2.3.1 was not engaged. While Mr McKavney had left pensionable service when he ceased to be an active member of the SPLAS, his Service had not ended in the sense required by the rule. Trower J emphasised that ending service and leaving pensionable service were two distinct concepts. Treating them as equivalent would mean that all members over 50 would have been entitled to immediate payment of their pension following the transfer, an outcome the court considered unlikely.

Finally, the commercial and regulatory context strongly supported this conclusion. If Mr McKavney’s interpretation was correct, his pension would have become immediately payable on transfer, thereby extinguishing his statutory two‑year right under the EPP Regulations to transfer accrued benefits.

Further, the court also noted that Mr McKavney could have transferred his SPLAS benefits within two years of the transfer, in which case he would have been entitled to his full unreduced pension when he was made redundant.

Implications

• TUPE transfers do not of themselves trigger “retirement” or “redundancy” provisions, unless scheme rules clearly provide otherwise.
• Provisions intended to mirror statutory or regulatory protections will be construed consistently with the underlying regulations, particularly where those regulations provide transfer rights rather than benefit crystallisation.
• The distinction between “ending service” and leaving pensionable service” can be critical, and scheme drafting should address this explicitly.
• Trustees and employers should review scheme wording and member communications in the context of corporate activity to ensure expectations are properly managed.

[1]  [2026] EWHC 508 (Ch)

Legislation blockbusters – an overview

For an overview of the new legislation, click here for our Bulletin on IHT and Pensions published 19/3/2026 and here for our Pension Schemes Act 2026 Bulletin published 29/4/2026.

This present article looks in more detail at what lies ahead under both Acts and the timetable.

IHT and Pensions

The new IHT charges on certain pension benefits under registered pension schemes apply only in relation to deaths on or after 6 April 2027. Nonetheless, there is much for scheme trustees and members to do in advance of this both in understanding the IHT charges and putting in place appropriate paperwork. Wedlake Bell’s long established and highly experienced Pensions and Private Client Teams can assist from the legal perspective and will be publishing further commentary over the coming months.

Some key timetabling points:

The timetable outlined below means scheme trustees and scheme administrators (together PSAs), and scheme members and those likely to be appointed as personal representatives (PRs) of members’ estates will have their work cut out to get up to speed with the new requirements. The timetable is expected to be:

• Spring 2026 – HMRC publish background technical note, issued 11 May 2026;
• Draft regulations (mainly relating to Information sharing between PRs and PSAs):
  • • Technical Consultation on the draft Regulations published 18 May 2026; and
    • Regulations finalised and laid in Summer 2026.

Alongside the above Technical Consultation, HMRC published the following drafts:

(1) guidance on the types of identity evidence PSAs should accept from PRs, and (2) templates for (I) notices to pay IHT which PRs or pension beneficiaries may give to PSAs and (II) notices to withhold payment of up to 50% of pension benefits which PRs may give to PSAs.

In late 2026/early 2027 HMRC are expected to finalise their guidance and revise the relevant pages of their Inheritance Tax and Pensions Tax Manuals.

So much to absorb and do!

Pension Schemes Act 2026

Much of the Act comes into force gradually over the next few years.

Many Regulations underpinning the Act’s provisions are in the process of being drafted. Following this:

• The government will, in the case of many sets of Regulations, consult on the draft version;
• Then consider the responses and make any changes thought by government to be necessary; and
• Finally, the Regulations will be laid in Parliament and made.

But there are also some aspects of the PSA which will have more immediate effect. For instance:

1) The Virgin Media remediation provisions:

These provisions came into effect on Royal Assent on 29 April 2026.

They enable scheme trustees, in appropriate cases, to ask the actuary to review certain past amendments and where reasonably satisfied to give retrospective actuarial confirmation that the amendments are effective as satisfying the statutory standard for contracted-out schemes. Click here for our article “Virgin Media: an Update” in February 2026 Pensions Compass.

In January 2026 the Financial Reporting Council (FRC) published provisional guidance to actuaries on their above role. On 26 March 2026, TPR published its provisional guidance to scheme trustees. The FRC’s guidance was finalised in May 2026.

2) Statutory Guidance on scheme trustees’ fiduciary investment duties:

This topic was a hot-potato during the Parliamentary passage of the Pension Schemes Bill.

It is now for the Government to issue statutory Guidance to scheme trustees on certain aspects of their fiduciary investment duties. A Consultation on draft Guidance is expected soon.

Many consider there is no need for such Guidance and its proposed terms are likely to be controversial.

3) DB schemes Surplus

Given the very large present size of surplus, these provisions will attract great interest. For background, click here for our article in April 2025 Pensions Compass “UK government plans major changes to trapped surplus”.

Regulations need to be made setting out some vital detail, for instance, what is to be the measure of “surplus”.

The new legislation will pose some tricky questions for scheme trustees in relation to their fiduciary duties. We understand TPR plans to publish guidance soon on this topic.

However, the timetable for the PSA 2026 provisions becoming operational depends on the regulations being made. A consultation on draft regulations is expected and it may be the regulations will be finalised by the end of 2026. However, it could be they will not become effective until later in 2027.

Return of surplus to employers may sometimes go hand in hand with a share of surplus being used for members’ benefits. Draft legislation to improve the tax treatment for members is likely later this year, to be included in Finance Bill 2026/2027 in Autumn 2026 and hopefully becoming law in Spring 2027.

Please be in touch if you have queries on the above matters or on any other aspect of the PSA 2026, or Finance Act 2026.

 

Pension Schemes Act 2026 – what’s in force and what’s coming up?

Timescale for making Regulations:

An Act of Parliament such as the PSA 2026 is scrutinised as it passes through its Parliamentary Stages in the House of Commons and House of Lords. In contrast, Regulations are made by, in effect, the Secretary of State and are laid in Parliament and will usually automatically come into effect after a specified period.

This is not an easy process:

• By their nature, Regulations specify in great detail how provisions in the primary legislation (the Act) are to work; and
• As a preliminary step, there will often be a Consultation by the Government to seek views on how the proposed Regulations should best be drafted.

This process often take 6 months or more, typically as follows:

• Consultation on Regulations  – cannot start before  an Act has received Royal Assent.
• Consultation period – sometimes 2 months or more.
• Government considers Consultation replies – two months or more.
• Regulations finalised and laid in Parliament – 2 months.

The likelihood is that the first Regulations under the PA 2026 will not be made until 2027 and some not until 2028 or 2029.

Regulations are usually brought into force only in April or October each year.

Main DB changes under the PSA 2026:

Changes with Immediate effect from PSA 2026 Royal Assent:

Virgin Media: the 2026 Act contains “remediation provisions” so that in appropriate cases, schemes can seek retrospective actuarial confirmation.

Changes dependent on Regulations being made:

For example:

Scheme surplus – power to amend scheme rules to facilitate using surplus in on-going DB schemes for benefit of relevant employers and members. These Regulations are likely to be controversial and are not expected to come into force until end of 2027. Several sets of Regulations will be needed setting the conditions for exercise of the trustees’ new power and the tax treatment of surplus received by members. Guidance from TPR will also need to be drafted and finalised.

Superfunds – establishing a permanent market for superfunds via an authorisation process. Many sets of Regulations and TPR Guidance will be needed. The Regulations are not expected to come into force until 2028.

Trustees’ Investment duties – obligation to have regard to statutory Guidance. The guidance has first to be consulted on. The Consultation is likely to be issued within the next 6 months.

DC changes under PSA 2026:

The DC market will eventually be substantially recast as and when the relevant Regulations listed below take effect, unlikely to be before 2028:

• Value for Money (VFM) Regulations will introduce new VFM requirements for default arrangements in trust – based DC schemes. These will include the publication of VFM data metrics and details on how trustees and scheme managers are to make VFM assessments.
• Under new DC Consolidation provisions, group personal pensions and master trusts will be required to have £25bn in assets managed by at least one “main scale default arrangement” (MSDA) by 2030. This requirement will be subject to Regulations providing for certain exemptions and to a transitional pathway for Schemes that have at least £10bn in assets by 2030.
• PSA 2026 provides for consolidation of DC small pots Regulations ensuring that small dormant pension pots with a value of £1,000 or less will automatically be held by consolidator schemes, where no contributions have been received for at least 12 months.
• The reserve power to direct investments is more restricted than the Government wished.

Concluding remarks

As always, the challenge for scheme employers, trustees, administrators and members is to keep up to date.

Against the background of parallel new legislation in other areas e.g. extension of Inheritance Tax to certain pension benefits from 6 April 2027 (see below for our 19 March 2026 bulletin) and Dashboards availability perhaps from early 2028, there is much to keep pace with and we will assist you wherever we can. If you have any queries, please contact your usual WB pensions Team member.

Inheritance Tax on Pension death benefits – understanding the new IHT regime

Big picture

Prior to 6 April 2027, the unused pension pots and death benefits of registered pension scheme members usually escape IHT where the scheme trustees have discretion over choice of the pension beneficiaries.

The bad news is that, even where discretion remains in future, for deaths on or after 6 April 2027 IHT will generally be payable on such funds.

The upheaval and tax cost of this change should not be under- estimated. The deceased member’s personal representatives (“PRs”), the scheme trustees and the scheme’s pension beneficiaries will need to work together regarding each of the deceased member’s relevant pension schemes. Where a member has, say, 3 different registered pension schemes, the member’s PRs may find themselves having to liaise with 3 different sets of scheme trustees and potentially with many different beneficiaries.

How is all this to work?

Answer:

(1) FA 2026 sets the liability pecking order: PRs are primarily liable for the IHT and can serve a notice on the pension trustees to withhold distribution of up to 50% of the relevant scheme benefits. The PRs can also serve the scheme trustees with a notice to pay the part of the IHT attributable to the value of the scheme’s relevant benefits. Likewise, scheme beneficiaries can send the scheme trustees a notice to pay; and
(2) Regulations are going to be made specifying the information flow – content and timing – required between the PRs, the scheme trustees and the pension beneficiaries. These Regulations are likely first to be issued for Technical Consultation in the next few months. They are unlikely to be finalised and made much before this Autumn. HMRC will also be revising their Inheritance Tax Manual. None of this leaves much time before 6 April 2027.

IHT calculation issues

IHT calculation is primarily the PRs’ duty, but there are also issues for the scheme trustees and the scheme members. For instance:

• PRs must apportion the deceased member’s IHT Nil Rate between the deceased member’s own estate and his pension benefits in relevant schemes within the scope of IHT, to calculate how much IHT relates to the member’s estate and how much to the member’s in-scope benefits under each pension scheme;
• Scheme trustees will be obliged to inform the PRs about the in-scope benefits for IHT; for instance, it is now clear that death benefits arising in course of a member’s employment or work are out of scope;
• Pension death benefits passing, for instance, to the deceased’s qualifying spouse or registered civil partner will be out of scope. Scheme trustees’ decisions over distribution as between a spouse and other beneficiaries thus becomes more complex. Not only is there a need to weigh up family circumstances including considering any letter of wishes left by the deceased member, but the IHT impact of choosing beneficiaries now becomes a relevant factor for scheme trustees where there is eg a spouse. Sometimes pension scheme trustees need extra time to identify, verify and choose beneficiaries – time is not on their side given the IHT interest charge on unpaid IHT;
• No IHT agricultural or business property relief is available on property held within the scheme as HMRC is not permitted by the legislation to look through to these assets;
• Illiquid assets in the scheme may cause problems both of valuation and in raising funds to pay IHT; and
• Potential PRs can also serve notices. It is not entirely clear who such persons are.

Conclusion

Lots of potential pitfalls in FA 2026 for PRs, scheme trustees (and their scheme administrators) and scheme members. Our Pensions and Private Client Teams can provide advice on the changes.

(For our previous articles on IHT and Pensions, click here for or December 2024 article, here for our October 2025 article and here for our February 2026 article)