Public Service Pensions Update: January 2026

This month we cover three Local Government Pension Scheme (LGPS)-specific developments, seven developments affecting all public service schemes and a Pensions Ombudsman decision on recovery of past overpayments.

If you would like to discuss anything in this newsletter, please contact one of the experts listed at the end.

Focus on the LGPS

Pension Schemes Bill | No change to LGPS provisions at committee stage

No changes were made to the LGPS-related provisions in the Pension Schemes Bill at House of Lords committee stage. Details of the relevant debate are here and here.

Pooling and governance | LGPS Fit for the Future | SAB and LGPC respond to consultations on draft regulations and guidance

In December the LGPS scheme advisory board (SAB) published news items sharing its draft and then its final response to the government's consultation on two sets of draft regulations to implement the "Fit for the Future" proposals.

In addition to setting out its own comprehensive comments, the SAB endorses the Local Government Pensions Committee's (LGPC) response on the draft LGPS (Amendment) Regulations 2026.

As promised in its earlier news item, the SAB also published its response on 9 January on the closed (that is, not public) consultation on draft statutory guidance to accompany the two sets of regulations in order to help administering authorities to provide any comments by 12 January.

SAB's response to the closed consultation warns that they foresee some risks due to the haste and manner in which the reforms are being implemented including the following note of caution: "There is a risk in this to MHCLG [Ministry of Housing, Communities and Local Government], that its policy may be implemented poorly, too hastily or in ways that diverge from its underlying intention. At the same time. there are risks to AAs, including sub-optimal implementation and the possibility of enforcement action by The Pensions Regulator (TPR) or MHCLG should they inadvertently misunderstand what is being asked of them."

LGPS Fit for the Future | SAB and LGPC respond to improvements, access and protections consultation 

The SAB has also published its response to the government's consultation Local Government Pension Scheme in England and Wales – Scheme Improvements (Access and Protections).

Both in the response and in the news item sharing it the SAB said that "the Board agreed to endorse much of the response from the LGPC…In particular, the Board would like to endorse the technical accuracy of their analysis of the impact of the proposals and how they might best be delivered. The main difference between the Board’s response and that of the LGPC is on the introduction of the Normal Minimum Pension Age and the need for protections for existing scheme members. That difference derives largely from the different composition of the Board, and the advocacy of the member representatives on it."

All schemes

Inheritance tax and pensions | Government promises regulations and guidance in advance of April 2027

In the previous edition we reported that the Finance No.2 Bill, including an updated draft of the inheritance tax and pensions legislation, had started its journey through Parliament.

A committee of the whole House (of Commons) debate on the inheritance tax and pensions provisions in the bill took place on 13 January. No amendments were made but, during the debate, the economic secretary to the Treasury said that "government will…publish regulations this year to provide the right framework to allow personal representatives and pension schemes to exchange all necessary information for inheritance tax purposes". They also said that "comprehensive guidance will be published in advance of April 2027 and HMRC will provide interactive tools to support personal representatives…HMRC will continue to work with industry on shaping that guidance and ensuring that the reforms are fully understood. People will be able to call the inheritance tax helpline for inquiries related to the reforms and, as we would expect, staff will be fully trained on each of the changes such that they can support customers."

Pension Schemes Bill | Royal assent this spring?

The Pension Schemes Bill has reached House of Lords committee stage, with sittings scheduled to 5 February (though more might be needed). Royal assent is expected in the next few months.

McCloud remedy | HMRC issues reminder on reporting offsetting of unauthorised payments

HMRC's pension schemes newsletter 176 includes links to previous guidance about offsetting unauthorised payments and what to report to HMRC and confirms that, when reporting "any offsetting of unauthorised payments, for it to be accepted as a submission", administrators need to:

• "use the template provided by HMRC, without making any formatting changes to any of the fields
• "complete all the mandatory fields, along with the declaration

If you provide a template with missing or incorrect information this will result in a rejection, penalties, or both. If you need a copy of the most up to date version of the template, contact your single point of contact."

Automatic enrolment | Government confirms no change to thresholds

The government has published its annual review of the automatic-enrolment earnings trigger and qualifying earnings band.

The 2025-26 threshold values will remain unchanged for 2026-27 tax year: £10,000 for the earnings trigger and £6,240 and  £50,270 for the lower and upper earnings limits of the qualifying earnings band.

The practical effect of this will be to bring more people into scope for automatic enrolment. With the Pensions Commission expected to deliver an interim report in phase two of the government's pensions review in spring 2026, it might soon become clear whether employers can expect more deliberate reforms to automatic enrolment.

Artificial intelligence | PASA sets out risk management considerations and suggests actions for schemes

The Pensions Administration Standards Association (PASA) has released guidance on the use of artificial intelligence (AI) in pensions administration.

The guidance gives practical examples of how AI is being or could be deployed into administration, sets out a list of important AI risk management considerations and suggests actions in relation to each one.

Funds should understand where AI is or is likely to be used in relation to their scheme, whether in connection with scheme administration or elsewhere. In addition to considering the PASA guidance in the area of administration, they might like to ask for training and or legal advice to help them to understand the different types of AI, the risks associated with AI and options for managing those risks.

Maximising data and helping industry adopt AI in a way that is responsible and ethical is one of three overarching objectives adopted by TPR's new Data and Digital Industry Working Group.

Administration | PASA publishes second of three digital administration guidance notes

PASA has released the second of three guidance notes on transforming scheme administration by applying "digital technologies to manage and optimise the operational, regulatory, and saver-facing functions of schemes" including "the digitisation of records, automation of workflows, secure data handling, and the delivery of accessible, user-friendly services to savers and stakeholders."

The first note was setting strong foundations. The second is planning the digital transformation, and the third (to be published in February) will focus on translating plans into delivery.

Police pensions | Government consults on aligning CARE revaluation date with start of tax year

The Home Office is consulting on a proposal to align the Police Pension 2015 CARE scheme revaluation date with the start of the tax year (a step already taken by some other public service pension schemes).

At the moment the revaluation date is 1 April each year. The proposal is to change it to 6 April to avoid distortion of annual allowance calculations, which are based on the tax year 6 April to 5 April the following year. The consultation is open until 16 March.

The Pensions Ombudsman | Key principles for recovering past overpayments confirmed

The Pensions Ombudsman has decided another complaint relating to the recovery of overpayments through recoupment from future pension payments following the Court of Appeal’s decision in BIC v Burgess (CAS-52655-W0Z3).

This decision follows a lead case (Mr E) but includes a careful explanation of how the ombudsman will approach cases where schemes are trying to recover past overpayments, and the principles and different defences which might apply. The decision refers to the options of repayment or recoupment, rather than repayment or equitable set-off, but is still relevant to public service schemes.

In the last edition, we highlighted a new factsheet that the ombudsman would like schemes to share with members, "ideally when informing them of an overpayment, or when a member queries or challenges the scheme’s attempt to reclaim an overpayment, so that members have a better understanding of this complex area."  The factsheet also sets out the ombudsman's expectations of schemes.

House of Commons Library | New and updated briefing papers

Recent House of Commons Library briefing papers:

• Automatic enrolment: current issues
• Budget 2025 and Finance (No. 2) Bill 2024-26
• Teachers' pension scheme
• Cyber security in the UK
• Inheriting pension rights

This newsletter covers developments relating to public service pensions in England and Wales with a focus on the Local Government Pension Scheme.