UK Public Service Pensions Update: May 2026

This month's headline development is the Pension Schemes Act 2026 receiving Royal Assent, locking in Local Government Pension Scheme (LGPS) pooling and governance changes and signalling wider reform across all schemes. 

The government has at last published its consultation response on the draft regulations to accompany the LGPS pooling and governance provisions in the Pension Schemes Act. We also cover an LGPS Advisory Board investment update, along with a number of developments relevant to all public service schemes, including Inheritance tax changes, the cap on National Insurance contributions (NICs) relief for salary sacrifice, the Pensions Commission's interim report, a County Court decision on limitation periods concerning the transfer of early retirement rights following Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) employment transfers, and the Pensions Regulator's (TPR) new artificial intelligence (AI) plan and corporate strategy consultation.

Focus on the LGPS

Pension Schemes Act | Royal Assent locks in pooling and governance changes and government responds to consultation  

The Pension Schemes Act 2026 received Royal Assent on 29 April 2026. The LGPS pooling and governance provisions make up sections 1 to 8 of the act.

Not long afterwards, on 21 May, the government published the response to its recent consultation on the draft Local Government Pension Scheme (Pooling, Management and Investment of Funds) Regulations 2026 (LGPS Pooling Regulations) and Local Government Pension Scheme (Amendment) (Governance) Regulations 2026 (LGPS Governance Regulations).

The LGPS Pooling Regulations and the LGPS Governance Regulations were laid before Parliament on 21 May and are expected to come into force on 30 June. The consultation response says that accompanying guidance on pooling, the investment strategy statement and fund governance will be published in time for the regulations coming into force.

The consultation response lists a number of changes made to the regulations to take account of the feedback received and confirms that the following key milestones are set out in the regulations:

"A fund’s assets must be under pool management within three months of their first participation in the pool, subject to such further transitional periods as the asset pool company may agree on a case-by-case basis where it is not reasonably practicable to have assets under pool management within the three month deadline." 

"Where an administering authority is moving asset pools, they will be exempt from the requirement to only participate in one pool for a period of three months.

"Further to the above, where an administering authority is participating in their old pool solely for the purpose of winding-down that pool, they will be exempt from the requirement to only participate in one pool until the wind-down process is complete.

"Administering authorities must appoint an LGPS senior officer and Independent Person within 6 months from the date of the regulations coming into force.

"The publication of the first investment strategy will be required by 31 March 2027".

Investment | Advisory Board update 

The LGPS Advisory Board has published a copy of the letter on fund investment in conflict zones it has received in response to the one it sent to the local government minister in October about the letter and position paper that some funds received from the Palestine Solidarity Campaign in August 2025. 

It has also published the LGPS Advisory Board chair's statement on the minister's response. The  statement indicates that in the absence of clarity from the minister, the board's advice to LGPS funds is to continue to have regard to their current responsible investment policies. When reviewing those policies they should carefully consider the guidance on fiduciary duty previously provided by the board. The board intends to publish more detailed guidance later in 2026 to support LGPS funds in reviewing their policies, including how best to assess and take into account member views.  

All schemes

2024 valuations | HM Treasury releases valuation and employer cost cap amendment directions

HM Treasury has published The Public Service Pensions (Valuations and Employer Cost Cap) (Amendment) Directions 2026 and related documents including a technical note dated 19 May and a letter dated 11 May from HM Treasury to the Government Actuary.

The directions "amend the previous directions, to ensure that the 2024 valuations of the public service pension schemes can be completed using updated assumptions. The Treasury has a statutory duty to consult the Government Actuary before making the Directions. The Treasury completed this statutory consultation during May 2026."

HM Treasury's letter dated 11 May 2026 to the Government Actuary contains a more detailed technical analysis. In a related news item, the Government Actuary's Department says that now the directions have been published, it will begin finalising valuation results and reports and expects to begin publishing the first sets of reports in June 2026.

Inheritance tax and pensions | HMRC shares new information and confirms next steps

HMRC has released a technical note providing more information about the change which will bring many of the benefits paid following the death of a member of a registered pension scheme into the member's estate for inheritance tax purposes where they die on or after 6 April 2027. 

It has also opened a consultation on draft regulations to amend the Registered Pension Schemes (Provision of Information) Regulations 2006 to require pension schemes and personal representatives to share information with each other and with pension beneficiaries and HMRC. The consultation is open until 11 June.

The technical note gives the following timetable for next steps.

• Spring 2026: publish draft templates for withholding and payment notices
• Spring/summer 2026: make and lay the regulations on information sharing requirements with a commencement date of 6 April 2027.
• Spring/summer/autumn 2026: continue process design and develop guidance and other support tools.
• Autumn/winter 2026/2027: share draft guidance with industry stakeholders.
• Winter/spring 2026/2027: communications activity to publicise upcoming changes to impacted groups.
• Spring 2027: publish guidance and other supporting materials.

Pension Schemes Act 2026 | Royal Assent | Miscellaneous

The Pension Schemes Act 2026 received Royal Assent on 29 April 2026. For private sector pensions, the act will bring landmark reforms for both defined benefit (DB) and defined contribution schemes. For public service pensions, the act brings the LGPS pooling and governance reforms. It also brings other changes.

Cash flow projections in unfunded DB public service pension schemes

The provision, added at House of Lords Report stage, for a review of the "long-term affordability, intergenerational fairness, fiscal sustainability, and accounting treatment of [the unfunded] public service pension schemes" did not make it into the act. Instead, the act contains section 128, which requires the government actuary, within 12 months of section 128 coming into force, to prepare and publish a document setting out cash flow projections for each of the next 50 years for the unfunded DB public service pension schemes. The government actuary must provide this document to the Treasury and the Office for Budget Responsibility, and the Treasury must lay the document before Parliament.

Section 128 took effect on 29 April this year, with the result that the report should be prepared before the end of April 2027.

Disputes about recovery of overpayments 

Section 121 of the act includes a change to make it easier to exercise a charge, lien or set-off against a member's benefits in cases where the member disputes that course of action. A recent Court of Appeal decision suggested that trustees who want to recover past overpayments of benefits by deduction from future payments cannot start recovery until they have a Pensions Ombudsman's decision confirming that they may do so and have referred that ombudsman decision to the County Court. 

The amendments will remove the need to refer to the County Court from the end of June. The amendments made by section 121 will also apply in two other situations where there might be a charge, lien or set-off against a member's benefits.

Atomic Weapons Establishment DB scheme 

Sections 112 to 120 of the act allow the government to defund the existing Atomic Weapons Establishment DB scheme and establish a "new central government pension scheme for its members." These sections took effect on 29 April 2026, but consist largely of powers to make regulations.

Salary sacrifice for pensions contributions | Royal Assent confirms restriction of national insurance saving and IFS publishes impact analysis

The National Insurance Contributions (Employer Pensions Contributions) Act 2026 also received Royal Assent on 29 April. 

In short, from 6 April 2029, the NIC exemption for salary sacrifice pension contributions will be capped at £2,000 per employee. The act includes a power to make regulations to introduce this cap on NIC relief from April 2029. At the moment, an employee pays no income tax or NICs on salary they sacrifice in return for their employer paying a contribution equal to the amount of sacrificed salary directly to a pension arrangement. From 6 April 2029, employees will still (subject to the usual limits) pay no income tax on sacrificed salary, but the NI exemption will only apply to the first £2,000 of salary given up. Beyond this threshold, employee and employer NI will apply. (Employers will still pay no NI on their standard employer contribution.)

The Institute for Fiscal Studies has published this analysis of the potential impact of this change. 

Army pensions | Regulations laid 

The Armed Forces Pension (Amendment) Regulations 2026 have been laid before Parliament and are expected to come into force on 11 June. 

The regulations "make various changes to the rules around ill-health awards that can be made to service personnel under four Armed Forces pension schemes…[put] in place a right of review for certain awards, and enable…both the cessation of existing payments and the set off against payments already made when a different ill-health pension award is made after review." They also correct an error in another set of regulations.

Pensions review | Interim report of Pensions Commission highlights under-saving

The Pensions Commission published its interim report on 19 May. The Pension Commission's work makes up phase two of the government's pensions review (pensions adequacy) and is most likely to result in reforms affecting private sector pensions. However, its themes are also relevant to the public sector.

The interim report notes the contribution made by automatic enrolment, the new state pension (uprating by the triple lock), and Pension Credit, but says that "with fewer retirees set to receive defined benefit pensions and significant gaps in existing policy.…there remains much work to be done to ensure income adequacy in later life, through a renewed, fair and sustainable settlement."

The executive summary highlights the following interim findings:

• "Pension policy should enable everyone to achieve a decent standard of living in retirement with the non-means-tested State Pension as a foundation." There are many ways of measuring  adequacy of retirement income. A hybrid adequacy metric "that builds on [income] replacement rates for middle earners while focusing  on a basic adequacy standard for lower earners would help guide policy in future."
• "Automatic enrolment has increased workplace pension saving but not enough for low and middle earners." To improve retirement income adequacy, particularly for low to moderate earners, the commission will "consider how the eligibility criteria, income thresholds, and minimum contribution rates for automatic enrolment will need to be adjusted in the future. Any changes in rates would not be for the current parliament, and implementation of future reforms would require notice and phasing to allow employers to plan for any changes."
• "Many people are not saving at all, and the length of working lives is also a driver of adequacy".  Barriers to saving and sources of inequality include the automatic enrolment age limits and £10,000 earnings trigger, working in the gig economy and being self-employed, the pensions savings gap between men and women, pension participation gaps for carers, people with disabilities and some ethnic minorities, and leaving the labour market before state pension age.
• "Decumulation choices decisively impact people’s retirements and stronger guardrails are needed." Since the defined contribution (DC) pension freedoms reforms in 2015, there have been "high levels of full cash withdrawals, widespread early access of ‘tax‑free lump sums’, and high withdrawal rates that risk running down savers’ pension wealth too quickly…Alongside the FCA’s introduction of ‘Targeted Support’ and the expansion of collective defined contribution, the Government is introducing ‘Guided Retirement’ through the Pension Schemes [Act]. This offers opportunities to help address decumulation challenges….[but] must be a true default as far as is possible. Decumulation solutions that rely on engagement and decision‑making for the vast majority of savers are not likely to be sufficiently effective. A more protective default mechanism is required to ensure the pension saving journey is smooth, the vast majority of savers are protected from risk, and the system remains fair and accessible up to and beyond retirement."
• "The existing settlement provides firm foundations but needs strengthening for the long term." The commission's final report may focus on higher rates of private pension saving and higher coverage, the state pension and pension credit, higher employment rates for older age groups, particularly those in their 50s and early 60s, and stronger guardrails for decumulation of DC pensions and passing less risk to individuals.

The commission will publish and submit its final recommendations to the government in 2027, but would welcome views on its findings so far. 

TUPE | County Court decides six-year limitation period applies to a claim that an employer failed to provide enhanced pension rights on redundancy

An employee’s enhanced early retirement or redundancy rights transfer to the new employer on a transfer of employment, pursuant to TUPE. These rights are known as “Beckmann rights”, after the case of Beckmann v Dynamco Whicheloe [2003] ICR 50. 

A recent County Court decision considers what limitation period should apply in a claim that an employer has failed to ensure that an employee's Beckmann rights on redundancy are provided following a TUPE transfer of employment.  (Charles Mendes v Slater and Gordon (UK) Limited v Energy, Safety and Risk Consultants (UK) Limited, 2026 WL 00793336)

The judge decided that the obligation to provide the Beckmann rights on redundancy was breached by the employer who made the employee redundant, immediately upon redundancy. The employee had a contractual claim for "failure to provide him with his entitlement under his contract of employment when that right was triggered by redundancy" and the claim was for "damages for the failure to procure those benefits, and not an obligation to pay". As a result, the limitation period for the employee's claim against the employer who made him redundant was six years, the date of breach was the date of redundancy and that was when the loss was sustained. 

We understand that the decision may be appealed.

AI | New plan confirms TPR's aims and expectations

TPR has published a plan setting out its role and approach to supporting the use of AI in pensions, its expectations of trustees, administrators and pension scheme managers, the steps it will take "to enable safe AI adoption and AI-powered innovation in the pensions sector", and how AI will be harnessed within the regulator.

TPR plans to publish guidance in 2026 on the responsible adoption of AI for pension schemes. In the meantime, funds might like to take note of the plan and TPR's expectations of those involved in the running of a pension scheme.

Open consultation | TPR asks for feedback on its next corporate strategy 

TPR is consulting on its draft corporate strategy for 2026 to 2031.

The member outcomes targeted are that "workplace pension members’ benefits are secure and delivered as promised… workplace pension members benefit from investments and services that deliver long-term value and support a sustainable income in retirement…people have fair access and opportunity across the workplace pensions system [and] the member outcomes are enabled by a healthy, high-quality, and end-to-end pensions market".

The intended market outcomes are "effective scheme governance and administration by independent, forward-looking and highly skilled trustees and scheme managers…a resilient, financially secure pensions system that supports UK growth and operates efficiently…[and] an end-to-end journey – from joining a scheme to taking an income in retirement, with innovative products and services connected to how people live their lives."

The consultation is open until 8 June. 

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