United Kingdom: Pensions – 2025 Highlights and 2026 Outlook

While 2025 has been a quieter year than 2024 for employers of occupational pension schemes in the United Kingdom, developments during the year have signaled important changes as well as potential opportunities that employers will need to take into account over the course of 2026.

2025: Highlights

1. A Pension Schemes Bill was laid before Parliament. Its provisions include:

• A new value for money framework for trust-based defined contribution (DC) schemes.
• A system for the automatic consolidation of small deferred DC pots.
• Measures to encourage the creation of DC “megafunds.”
• A requirement for DC schemes to offer a default retirement income solution or range of retirement income solutions.
• Changes to the defined benefit (DB) surplus extraction regime (see item 3 below).
• A legislative “fix” for issues arising out of the Virgin Media ruling (see item 4 in “2026: Outlook” below).
• Removal of the restrictions that prevent the Pension Protection Fund (PPF) from reducing the PPF levy below £100 million.
• An authorization and supervision regime for DB superfunds.

In light of the PPF levy provisions, the PPF has announced that it would set the 2025/26 levy at zero. For more information, see our Legal Update on the Pension Schemes Bill.

2. The Autumn Budget 2025 announced that from April 2029, the National Insurance contributions (NICs) exemption for employee pension contributions made via a salary sacrifice arrangement will only apply to the first £2,000 of contributions. Any excess over £2,000 will become subject to NICs. The NICs exemption for employer pension contributions and for other employee benefits provided via salary sacrifice will remain unchanged.

3. The government announced that it would give trustees of ongoing DB schemes the power to modify their scheme rules to allow them to make surplus payments to the employer or to remove or relax restrictions in any existing power. The government will also modify the statutory requirements that must be met for a surplus payment to be made to an employer. In particular, the funding threshold which must be met will be reduced from full funding on the buy-out basis to full funding on the low dependency funding basis. The changes are expected to come into force in 2027. For more information, see our Legal Update on the announcement. The Autumn Budget 2025 also announced that from April 2027 schemes would be given the power to make surplus payments directly to members who are aged over normal minimum pension age if certain conditions are met.

4. HM Revenue & Customs (HMRC) announced that it will no longer require a pension scheme’s investment costs to be apportioned between the employer and the trustees for the purposes of value-added tax (VAT) recovery when either of the following scenarios apply:

• The trustees have contracted with the employer to provide a service to the employer of running the scheme.
• The scheme has a corporate trustee which has entered into a VAT group with the employer.

Instead, the entirety of the investment costs will be treated as the employer’s, meaning the employer will be able to recover the associated VAT in full (subject to normal VAT recovery rules). For more information, see our Legal Update on the new HRMC policy.

5. The Autumn Budget 2024 announced that almost all death benefits paid from registered pension schemes (whether DB or DC) will form part of the deceased member’s estate for inheritance tax (IHT) purposes. This includes discretionary lump sum death benefits which are currently not subject to IHT. In July, HMRC announced that death in service benefits, whether discretionary or non-discretionary, will not form part of the member's estate for IHT purposes.

2026: Outlook

1. Changes to the collective DC (CDC) regime will come into force on July 31, 2026 to allow the establishment of unconnected multi-employer schemes. Under a CDC scheme, employers and members make fixed contributions. However, in contrast to a traditional DC scheme, contributions are invested on a collective—rather than individual—basis, and members are promised a target pension. Investment and longevity risk are pooled, and the target pension can be adjusted up or down, depending on actual investment returns and longevity experience. The current regime only allows single employers or a group of connected employers to participate in a CDC scheme.

2. October 31, 2026 is the statutory deadline for all pension schemes with more than 100 active or deferred members to connect to the pensions dashboards ecosystem. Pensions dashboards will allow individuals to view information about all their pension savings, including their state pension, on a single website. The government has not yet set a date for public dashboards access, but this could well occur in 2026.

3. The government has revived the Pensions Commission to examine the long-term future of the UK pension system and make proposals for change that ensure the United Kingdom delivers financial security in retirement. The Commission is expected to publish an interim report in spring 2026, with its final report to be published in 2027.

4. The legislative “fix” for issues arising out of the Virgin Media ruling is expected to come into force during 2026. In Virgin Media, the courts held that amendments to certain contracted-out rights that were not accompanied by the written actuarial confirmation required under legislation are void. The ruling raised the prospect of substantial increases to scheme liabilities. The fix enables trustees to obtain retrospective actuarial confirmation that historic alterations to contracted-out benefits met the relevant statutory requirements. Various conditions must be met, and there are restrictions on which alterations will be capable of remediation. For more information, please see our Legal Update on the proposed amendments.

5. The government’s next review of the alternative quality requirements for DB and hybrid automatic enrollment schemes will take place in 2026. The government must review these requirements every three years. The last review, in 2023, concluded that the requirements should remain unchanged.