UK Pensions: What’s New This Week?— July 20, 2026

Welcome to your weekly update from the A&O Shearman Pensions team, covering all the latest legal and regulatory developments in the world of workplace pensions.

Summary

• HMRC has updated its guidance on recovering input tax on pension scheme expenditure: employers and trustees should review the revised guidance and consider whether to make changes to current practices.
• The updated UK pensions roadmap revises key Pension Schemes Act 2026 timings, and the government gives more details on VfM, scale and guided retirement. Criteria set for assessing success.
• HMRC publishes draft legislation to permit authorised payments of surplus direct to members.
• Final IHT regulations clarify scheme and personal representative information-sharing duties from April 6, 2027.
• Plus: increases to General Levy, TPR ‘growth goals’, corporate strategy and plan; master trust asset research.

VAT: HMRC updates VAT Notice 700/17

HMRC has made significant updates to VAT Notice 700/17 (its guidance note for employers and trustees on recovering input tax on the costs involved in running DB occupational pension schemes). The updates follow a policy change in June 2025 and updates to HMRC’s VAT input tax manual that we reported on here.

The key points to note are:

• VAT incurred in both setting up a scheme and its day-to-day management is the employer’s input tax. This applies even where the trustees pay for the services supplied. (This position is unchanged.)
• Employers can also treat the input tax incurred on investment activities as their input tax. This is a reversal of HMRC’s previous position.
• Employers can now deduct input tax incurred on both investment and administration services provided by a fund manager/professional trustee/other supplier, provided that the invoice is in their name or “care of” the employer. The same principle applies for trustees—they can recover input tax relating to investment management costs if the invoice is in their name, subject to normal VAT rules and limits. However, invoices correctly made out to a trustee may not be re-issued to the sponsoring employer.

The updated VAT Notice is helpful and clarifies a number of points, including that the position has not changed in relation to the recoverability of input tax on administration costs, and that employers can now recover input tax on both administration and investment management costs, subject to normal deduction rules. Schemes and employers should review their VAT recovery arrangements and consider whether current practice remains optimal.

Read VAT Notice 700/17.

Updated pensions roadmap

The government has published an updated pensions roadmap for implementing upcoming reforms set out in the Pension Schemes Act 2026 (PSA). Key timings are set out below.

DB surplus

Recently published regulations setting out the details of surplus release under the PSA are expected to be made early in 2027 and come into force on April 6, 2027 (ahead of the previous timeline). The government has published a policy paper and draft legislation—also expected to come into force from April 6, 2027—to allow direct surplus payments to members to be treated as authorised payments for tax purposes (see below).

VFM

A phased implementation of the Value for Money (VfM) framework is being proposed, with only large schemes having to comply with the full requirements in the first year (expected to be 2028) and more lead-in time for data collection. A consultation on the draft VfM regulations and FCA rules has been published (see below).

The roadmap says that the Pensions Regulator (TPR) will publish additional guidance in summer 2026; regulations will come into force and a TPR Code consultation will be published towards the start of 2027, with the Code coming into force in spring 2028 when schemes are first required to submit their data.

Guided Retirement

The timeline for implementing the Guided Retirement framework (requiring occupational DC schemes to provide members with one or more default decumulation solutions designed to provide a regular income in retirement) has been pushed back from the previous 2027 target. The timetable now includes: consultations on policy in autumn 2026 and on regulations in autumn 2027, with regulations to be made in summer 2028; master trusts to be compliant from summer 2029; and single employer trusts to be compliant from summer 2030. A policy paper setting out guiding principles for default pensions under guided retirement has also been published (see below).

The DWP will consult in the autumn on allowing an extension to the guided retirement deadlines for schemes that are committed to pursuing a retirement CDC (R-CDC) scheme as a default option.

Scale requirements

DC multi-employer schemes used for automatic enrolment (AE) must have assets of at least GBP25 billion in a single main scale default arrangement from April 2030. The roadmap suggests that there will be a consultation on regulations in autumn/winter 2027, a consultation by regulators on a Code and guidance during 2028, and that applications and assessment periods will begin in 2029.

Those schemes that are not approved at scale or for transition pathway relief will enter a period during which they can continue to manage their existing business and take contributions from existing employers while they work with regulators and employers to move all future contributions to a different scheme. A discussion paper on the scale policy has been published separately (see below).

Small pots

The DWP is undertaking a review of the digital infrastructure required for small pots consolidation. A first consultation focusing on the framework for establishing default consolidator schemes and the underpinning infrastructure is scheduled for autumn 2026. The target date for consolidation to begin is April 2030.

DB Superfunds

The DWP intends to consult on DB Superfund regulations early next year. It still anticipates that the full regime will come into force in 2028, but has allowed more time before consulting on the draft regulations and implementing the regime to create “more space to learn from TPR’s interim regime and react to market changes”.

PPF changes

The paper notes that PPF liabilities of eligible DB schemes will be impacted by provisions in the PSA providing for indexation of compensation payments from the PPF and Financial Assistance Scheme (FAS) that relate to pensions built up before April 6, 1997. The DWP is working with the PPF to deliver the PPF/FAS pre-97 indexation regulations, which will contain some transitional arrangements. A targeted consultation with key stakeholders will take place over the summer. The first payments to eligible PPF/FAS pre-97 members will be made in January 2027.

Fiduciary duties

The DWP is developing guidance on trustees’ fiduciary duties related to investment decision-making. This will “provide clarity and practical support, giving trustees confidence to act in the best interests of members, including over the long term”. Consultation on the guidance is planned for summer 2026.

Targeted support

The paper gives a hint that Targeted Support (giving pensions recommendations that are designed for groups of consumers with similar characteristics and circumstances) may be extended from FCA- and PRA-authorised firms into the occupational scheme arena, stating that the “government is seeking to ensure that all pension members are offered good quality support to manage their pensions, regardless of how their pension provider is regulated”.

Read the roadmap.

Payment of surplus to members

HMRC has published a policy paper and draft legislation making changes to allow payment of surplus directly to a member without triggering penal tax charges. The proposals would introduce “authorised member surplus payments”. Conditions include that the recipient meets age or ill-health conditions or is a dependant following the member’s death; payment is at trustees’ discretion; and the same conditions as for a payment to an employer (also being revised) are met. 

The payment will be treated as pension income; it will be excluded from pension input amounts for the purposes of the annual allowance and would not affect an individual’s entitlement to lump sum allowances. Feedback on the legislation should be provided by September 7, 2026.

Read the policy paper and the draft legislation.

Value for Money consultation

The government has published a consultation and draft regulations and rules for the VfM framework for both TPR-and FCA-regulated schemes. The consultation closes on September 1, 2026; the DWP intends to issue final regulations for trust-based schemes by January 2027.

Key changes from previous proposals include:

• A phased approach to implementation—for the first year (2028):
  • Only master trusts, large single employer trusts (with 50,000 or more members) and firm-designed, open, multi-employer contract-based schemes will have to complete assessments.
  • The formal consequences of receiving an amber or red rating will not apply.
  • Smaller schemes will be required to complete data returns but will not be required to complete assessments and their data will not be published.
• More time to prepare—also in the first year, there will be a shorter initial data collection period: July to December 2027 (previously January to December 2027), giving more lead-in time.
• Publication of data—feedback is being sought on whether data submitted in March should only be made public in November, after schemes have published their assessment reports. During the period between March and October, schemes would have access to all disclosed VfM data for assessment purposes.
• More tailored comparators—comparator groups will be specific to the year to retirement point and decumulation aim.
• Measuring investment performance—the government is proposing a new geometric averaging methodology, rather than the previously suggested arithmetic approach.
• Disclosure of underlying forward-looking metric assumptions—this will be mandatory, instead of requiring third-party advice on forward-looking metrics.

Read the VfM consultation.

DC scale discussion paper

A discussion paper has been published seeking input on the scale requirements being introduced in April 2030, requiring all authorised Master Trusts and group personal pension schemes (GPPs) that are used for meeting AE obligations to have assets of at least GBP25 billion in a single main scale default arrangement (MSDA). The paper focuses on questions around what assets can be included in the MSDA; how the Common Investment Strategy (under which assets held within an MSDA must be managed) should be defined; and how to define “connection” in relation to schemes being able to share an MSDA. Feedback is sought by September 7, 2026.

Read the DC scale discussion paper.

Principles for guided retirement

The government has published a policy paper setting out key principles for default pensions used to satisfy the upcoming guided retirement duty (that occupational DC schemes provide members with one or more default decumulation solutions designed to provide a regular income in retirement). The principles identified are:

• No requirement for complex decision-making by the member—for most savers, the only decision will be when to access their pension and whether to remain in the default pension or choose an alternative.
• Protection against longevity risk—default pensions should last throughout retirement. There is flexibility around how to deliver this—solutions could incorporate different phases, such as a flex then fix approach.
• Freedom of choice—the government does not intend the new requirements to erode the freedom for individuals to choose their own options.
• Consent—the point at which an individual agrees to start receiving payment via the default pension is the key consent moment; schemes will not be expected to seek consent multiple times.

Read the guided retirement policy paper.

General Levy consultation

Changes to the General Levy for occupational and personal pension schemes are being consulted on. The key proposal is a phased equalisation approach: DB and hybrid schemes would see 5% annual levy increases from 2027/28, DC schemes excluding master trusts 6.2%, and master trusts and personal pension schemes 9%. This is intended to put the levy on a more sustainable footing. The government intends to undertake a broader review of the levy system over the coming years. Consultation responses should be sent by midday on September 8, 2026.

Read the General Levy consultation.

Consultation on ring-fencing reform

HMT is consulting on reforms to the ring-fencing regime. Among other changes, there is a proposal that ring-fenced banks’ defined benefit pension schemes will be able to transfer surplus funds to a DC scheme in the non-ring-fenced bank, subject to conditions including that both schemes party to a transfer must be part of the same trust.

The consultation closes on September 8, 2026.

Read the ring-fencing reform consultation.

IHT information-sharing regulations made

Regulations setting out information sharing requirements for schemes and personal representatives (PRs) when pension benefits become subject to inheritance tax (IHT) from April 6, 2027 have now been finalised. A number of changes have been made since the earlier draft regulations, including: death in service payments are no longer included as a new reportable event; new changes to the existing obligations to give information to PRs on death; and a range of tweaks to the information required at various stages.

Read the information-sharing regulations.

“Growth goals”, evaluation strategy and TPR’s corporate strategy and plan

The DWP has published a Regulation Action Plan setting out “growth goals” for TPR: objectives for the regulator to help the government deliver economic growth. The four goals are:

• Reform the workplace pensions sector to boost growth and support adequate income for pension savers in retirement—the target outcome here is the market consolidating into fewer, larger schemes, able to “harness the full range of investment opportunities”.
• Unlock surplus/capital to benefit savers, employers and the economy—TPR is expected to pursue an increase in both the number of DB schemes releasing surplus and the amount of surplus released.
• Support productive investment to grow the economy and increase saver returns—pension funds should be “supported to invest in productive assets, particularly in the UK”.
• Promote the responsible and safe use of AI technologies in pensions to improve saver outcomes—TPR will provide the pensions industry with “the tools to explore and implement AI in a safe, controlled way”.

The DWP has also published its strategy for assessing the success of the PSA. This sets out “logic models” showing how PSA policies are expected to take effect, with headline metrics and evaluation questions to assess progress.

TPR has published its Corporate Strategy for 2026–31 and Corporate Plan for 2026–27. Areas of focus include delivering VfM and a sustainable income in retirement; working with other parties such as the FCA to create consistency across the industry; and promoting innovation. Some of the deliverables over the next year include guidance on the extraction of DB surplus, guidance on the responsible adoption of AI; a strategy and workplan to ensure schemes have trustees and governance structures that enable a diversified range of investments; delivering a dashboards preparation and communications programme, including duties guidance, and implementing a dashboards compliance and enforcement regime.

Read the regulation action plan, evaluation strategy, TPR’s corporate strategy and corporate plan.

TPR report on master trust asset allocation

TPR has published a report on asset allocation across DC master trusts’ (MTs) default funds. Findings include: public markets account for the majority (88%) of default assets; 6% of assets are invested in unlisted private markets (larger MTs being more likely to invest larger proportions); and 15% of assets are held in UK investments.

Read the report on master trust asset allocation.