Defined benefit pension schemes

In line with the government's May 2025 response to the "Options for DB schemes" consultation, the Pension Schemes Bill will make changes intended to make it easier for the trustees of an ongoing DB scheme to modify scheme rules to allow them to share surplus with the employer and, as part of this process, to negotiate with the employer to get additional benefits from surplus for scheme members.

For example, where the scheme rules do not contain a power to make a surplus payment to an employer, the Bill will change the law to allow trustees to pass a resolution to amend the rules to introduce such a power. Where there is a power, the Bill will change the law to allow trustees to pass a resolution to relax or remove restrictions. The requirement for trustees to previously have passed a resolution under section 251 of the Pensions Act 2004 will be removed.

The statutory conditions for payment of surplus to an employer (set out in section 37 of the Pensions Act 1995) will also be amended. In particular, the government is minded to replace the requirement that a scheme be more than 100% funded on the buy-out basis with a requirement that it be more than 100% funded on a low dependency basis. Further detail of the required funding level will be set out in draft regulations, on which the government will consult.

The 2025 UK Budget paper says that the government will enable "well-funded DB pension schemes to pay surplus funds directly to scheme members over the normal minimum pension age, where scheme rules and trustees permit it, from April 2027". More detail is needed, including on which schemes this will apply to (ongoing schemes, schemes in wind-up, or both). This HMRC newsletter confirms that the Finance Bill 2026-27 will include provisions to allow, from 6 April 2027, "direct payments of surplus assets to members or other beneficiaries " from schemes in surplus on the same funding basis as applies to payments to an employer "where permitted by scheme rules and subject to trustee discretion". These (one-off?) payments will be treated as authorised payments and taxed as pension income at the individual’s marginal rate of tax.

Why this is important

Release of surplus from an ongoing scheme has the potential to bring economic benefits to employers and to scheme members. However, it also brings some risk.

In all contexts, including when deciding whether to use the new powers to amend the scheme rules, trustees will need to act in accordance with their legal duties. To support trustees in the exercise of their duties, the Pensions Regulator will publish surplus extraction guidance.

Current position and projected timings

The Pensions Regulator has published guidance on new models and options in DB schemes. This includes guidance on the steps that trustees and employers can take to prepare for the changes to be introduced by the Bill.

The Pension Schemes Bill has nearly completed its passage through Parliament. In September 2025, the following amendments to the clauses relating to the extraction of surplus from an ongoing DB scheme were approved by the Public Bill Committee and added to the Bill.

• Amendments to confirm that it will not be possible to use the new trustee powers in order to introduce a power to pay surplus to an employer on winding-up, and to make it clear that trustees must ignore any power to pay surplus to an employer on winding-up when considering the exercise of the new powers.
• The introduction of a power to make regulations to confirm whether and how the new trustee powers will apply to certain schemes (for example, how they will apply to sectionalised schemes).

Two amendments to this part of the Bill that could have introduced greater certainty on pensions increases for members with pre-April 1997 pension rights were not approved by the Public Bill Committee and therefore did not make it into the Bill. The pensions minister did, however, say the following about discretionary increases: "My view - and the guidance to be released by the TPR will make this very clear - is as follows…[Even when the scheme rules say that the employers must agree [to discretionary increases], they will have a strong incentive to agree with the trustees if they are asking the trustees to release [surplus]. That is why I say that the process of surplus release will change the dynamic of those discussions, which I recognise are currently not proceeding in some cases because employers are saying a blanket no to discretionary increases."

The pensions roadmap released alongside the Bill in 2025 suggests that the government hopes:

• The Bill will receive Royal Assent in 2026.
• Once the Bill has received Royal Assent the government will (in 2026) consult on the related draft regulations.
• Regulations will be laid in 2027.
• The regulations and new Pensions Regulator guidance will come into force by the end of 2027.

(The relevant part of the Bill - Act - will come into force on a date to be set by regulations.)

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In line with an announcement made by the Department for Work and Pensions in early 2025, the Pension Schemes Bill will amend the Pensions Act 2004 to give the Pension Protection Fund (PPF) more flexibility in setting levies.

For example, the Bill will change the law to make it easier for the PPF to set a reduced levy. It will set a new restriction on the amount of levy that can be charged. And it will change the law to say that the PPF 'may' impose a levy on a particular category or categories of eligible scheme or on all eligible schemes, rather than that it 'must' impose a levy on all eligible schemes.

Why this is important

The PPF has a strong reserve. However, the legislation governing the PPF levy is currently written in a way that would prevent the PPF from restarting the levy if it were to reduce it to zero, and prevent it from materially increasing the levy if it were to reduce it to a much lower level. Giving the PPF more flexibility would allow it to impose a reduced or zero levy on some or all schemes when appropriate while retaining the ability to raise a higher levy if needed.

Current position and projected timings

The Pension Schemes Bill has nearly completed its passage through Parliament. 

The pensions roadmap released alongside the Bill says that any "substantial changes the PPF Board wish to make to the levy, will come into force the financial year that begins after Royal Assent (indicatively here, April 2027)."

In a September 2025 news item, the PPF confirmed that it will not charge a levy for 2025/26 and that it will "continue to support policy makers as they consider the Bill in its remaining parliamentary stages and, in due course, engage with industry on our levy plans for 2026/27, which will be informed by the remaining passage of the Bill."

In November 2025, the PPF launched a consultation on its plans for the 2026/27 PPF levy and gave an update on the approach it intends to take. In February 2026, the PPF confirmed that it will set a zero levy for 2026/27 for conventional DB schemes.

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The Pension Schemes Bill will make the legislative changes needed to support people being able to see on pensions dashboards information about any Pension Protection Fund (PPF) or Financial Assistance Scheme (FAS) compensation and financial assistance to be paid to them.

Why this is important

Pensions dashboards are intended to provide people with a complete picture of what they might have when they retire and where it might be paid from. This change will ensure that the information that PPF and FAS members see on pensions dashboards includes PPF and FAS information.

Current position and projected timings

The Pension Schemes Bill has nearly completed its passage through Parliament. 

This change will take effect once the Bill has received Royal Assent.

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The UK Budget 2025 included an announcement that, from 1 January 2027 and where the original scheme provided for it, the government will introduce annual CPI-linked increases (capped at 2.5%) on pre-6 April 1997 pension of members of the Pension Protection Fund (PPF) and Financial Assistance Scheme (FAS).

Why this is important

Where they apply these increases will help to protect members covered by the FAS and the PPF from the impact of inflation.

The trustees of schemes in a PPF assessment period, preparing for a PPF+ buy out, or who have completed a PPF+ buy out should seek legal advice on what is changing and how this might affect them.

Current position and projected timings

New clauses 108 to 110 (Pension compensation: indexation) were inserted into the Pension Schemes Bill at Report stage in December 2025. Clause 122 of the Bill was also amended to confirm that those provisions will come into force on a date to be set by regulations.

On 26 November 2025 the PPF published this statement in which it said that, if the Pension Schemes Bill " becomes law [in 2026] as expected, the first opportunity to begin applying any changes to pre-97 indexation would…be January 2027. The final shape of any legislative change, as well as when the Bill becomes law, will influence the timescales for implementation."

On 9 January 2026, the PPF published answers to the questions it has been asked most frequently by members and other stakeholders and confirmed that it planned to review and update these as appropriate.

On 5 February 2026, a number of amendments to these sections were agreed at House of Lords Committee stage. You can find the details at column 644GC to 661GC of this document.

More amendments were made at House of Lords report stage on 23 March 2026. You can read more at column 1261 to 1277 of this document.

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In September 2025, the Public Bill Committee approved the addition to the Pension Schemes Bill of new clauses intended to help to address issues arising from the Court of Appeal's decision in Virgin Media Ltd v NTL Pension Trustees II Limited & Ors. These clauses were amended at House of Commons Report stage, in December 2025. A further amendment was proposed at House of Lords Committee stage (early 2026), but withdrawn.

Why this is important

The clauses are the legislative provisions that the DWP confirmed in June 2025 it would introduce.

Subject to any more changes made to them as the Bill proceeds through Parliament, the new clauses could provide a way forward for schemes where amendments were made to "section 9(2B) rights" in the past, and a "section 37" actuarial confirmation cannot now be evidenced.

Where a scheme has been wound up before the new clauses come into force, where the Pension Protection Fund has assumed responsibility for a scheme before the new clauses come into force, or where scheme members are now members of the Financial Assistance Scheme, the draft clauses include a deeming provision: any "potentially remediable alteration" will be treated as having met the actuarial confirmation requirement before it was made and so as always having been valid.

In other cases, trustees will be able to make a written request to the current scheme actuary in relation to any "potentially remediable alteration". The scheme actuary will then consider whether, in their opinion, it is reasonable to conclude that, on the assumption that it was validly made, the alteration would not have prevented the scheme from continuing to satisfy the "statutory standard" (broadly, the reference scheme test). If the answer to this question is yes and the scheme actuary gives a written confirmation, then the amendment will be treated as having been valid from the point at which it was made. 

An amendment/alteration will not be a "potentially remediable alteration" if the trustees have taken "positive action" (as defined in the Bill) in relation to it, or have been a party to legal proceedings (in the circumstances set out in the Bill) in relation to it.

The clauses also give the government power to make regulations to take further categories of amendment out of scope.

Current position and projected timings

On 23 January 2026 the Financial Reporting Council issued guidance to help scheme actuaries when considering requests for a written confirmation. The related press release included a statement from the Pensions Regulator that it planned to issue separate guidance for trustees in spring 2026, and that guidance (the Pensions Regulator's guidance) was issued on 26 March 2026.

A number of amendments were made to the Virgin Media-related provisions in the Bill at House of Commons Report stage in December 2025:

• As a result of changes made to clause 122 of the Bill, these provisions will now come into force on the date the Bill receives Royal Assent (and not, as the original wording suggested, two months after Royal Assent). This change could be important, for example, to schemes who are trying to complete a wind-up before the legislation comes into force.

• Changes have been made to clause 100 which will affect when trustees or managers will be said to have taken "positive action" in relation to an amendment, with the result that the amendment will not be a "potentially remediable alteration".

  - "Positive action" can now be on the basis that trustees or managers consider an amendment to be void due non-compliance with the requirements of paragraph (2)(a) and (b) of regulation 42, or non-compliance with the requirement in paragraph (2)(a) or (2)(b). (The requirement in paragraph 2(a) was that the trustees inform the actuary in writing of the proposed alteration and the requirement in 2(b) was that the actuary consider the proposed alteration and confirm to the trustees in writing that he was satisfied that the scheme would continue to satisfy the reference scheme test if the alteration were made). The practical effect of this seems to be to widen the circumstances in which trustees might be said to have taken "positive action" with the result that an amendment is not a "potentially remediable alteration".

  - "Positive action" itself now means notifying any members of the scheme in writing to the effect that the trustees or managers consider an alteration to be void (by reason of non-compliance with the requirements of paragraph (2)(a) and or (b) of regulation 42) and that the scheme will be administered on the basis that it has no legal effect, or notifying any members of the scheme in writing to the effect that (because they believe an alteration to be void for non-compliance with those requirements) the trustees or managers are taking (or have taken) any other step in relation to the administration of the scheme which has (or will have) the effect of altering payments to or in respect of members.

• Changes have been made to clause 100 which affect when trustees or managers will be said to be or have been party to legal proceedings in relation to an amendment, with the result that the amendment will not be a "potentially remediable alteration". This will be where proceedings have been brought before a court in the UK to determine a dispute as to the rules of the scheme, and the parties are (or include) the trustees or managers of the scheme, and one or more members or other beneficiaries of the scheme (or a person acting on behalf of one or more members or other beneficiaries). "Court in the UK" is not intended to catch proceedings before a tribunal or a complaint to an ombudsman.
• Clause 101 has been revised to make it clear that, when a scheme actuary considers a trustee request for an actuarial confirmation that a "potentially remediable alteration" would not have prevented the scheme from continuing to satisfy the reference scheme test, the actuary should start by considering the information available to them and whether there is missing information to address, before taking any professional approach open to them in the circumstances - not the other way around. Also to confirm that, in a public service pension scheme, the "responsible authority" (rather than trustees or managers) would ask the scheme actuary for an actuarial confirmation.
• Clause 102 has been updated to state that the deeming provision ("potentially remediable alterations" made to a scheme which is wound up or for which the PPF assumes responsibility before this part of the Bill takes effect are deemed to have been validly made) will also apply to "potentially remediable alterations" made to a part of a scheme (for example, a section of a segregated scheme) where that part has been wound up/the PPF has assumed responsibility for that part before the clause comes into force.
• Some minor and technical changes.

A further amendment was proposed at House of Lords Committee stage (early 2026), but withdrawn. It is still possible that changes could be made before the Bill receives royal assent.

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A new clause 116 was added to the Pension Schemes Bill at Report stage in December 2025. This will abolish the administration levy and provide that, going forwards, the operating and administration costs of the Pension Protection Fund (PPF) and Fraud Compensation Fund (FCF) should be met out of those funds. It will also confirm that, as has been the case in practice, no administration levy is payable in respect of the financial years starting 1 April 2023 and 1 April 2024.

Why is this important

At the moment, the administration levy meets the administration costs of the PPF and FCF. Removing the levy and providing for those costs to be met directly out of the PPF and FCF will save money for schemes.

Current position and projected timings

Clause 122 of the Pension Schemes Bill has been amended to say that these changes will take effect either on, or with retrospective effect from, 1 April 2026.

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