HL UK Pensions Law Digest 6 March 2026

Inheritance tax (IHT) on pensions: amendments to the Finance (No 2) Bill

• Clarification from the government of how the IHT provisions will work;

Pension Protection Fund: announcement confirming zero levy

• The Pension Protection Fund (PPF) has announced that it will not charge conventional schemes a PPF levy for 2026/27;

HMRC Pensions Newsletter 178: increase to normal minimum pension age (NMPA)

• Further information on the increase of the NMPA to 57 from 2028;

Pensions Regulator: February Regulatory Round-Up

• The Pensions Regulator (TPR) has circulated its latest Regulatory Round-Up, including reminders of upcoming deadlines;

Pensions Regulator (TPR): design defaults for different lives

• A blog from TPR encouraging default strategies to reflect modern lives;

Pensions Ombudsman: upholds complaint against independent trustee in relation to investment losses

• The Pensions Ombudsman (TPO) has upheld a complaint against an independent trustee of three small self-administered pension schemes, following insufficient due diligence on investments;

Pensions Administration Standards Association: publishes final part of its Digital Transformation Guidance

• The Pensions Administration Standards Association (PASA) has published the final part of its series of guidance on delivering effective digital transformation in pensions administration;

Pensions Administration Standards Association: launches trustee-administrator engagement series

• The Pensions Administration Standards Association (PASA) has published the first part of a new four-part trustee-administrator life-cycle series.

Inheritance Tax and pensions: amendments to Finance (No 2) Bill

Alongside the Chancellor’s Spring Statement on 3 March 2026, the government has tabled numerous amendments to the provisions of the Finance (No 2) Bill which will bring many pension death benefits within the scope of inheritance tax (IHT) for deaths on or after 6 April 2027.

The most significant changes are as follows.

Death in service benefits: removal of requirement to be an active member

• Death in service benefits will be outside a member’s IHT estate if they meet certain conditions. Helpfully, the requirement for a deceased member to have been an “active member” immediately before death is being removed.
• The “active member” requirement had raised practical concerns, including whether a member whose only potential benefit under the scheme was a death in service lump sum would be treated as an active member. The removal of this requirement is therefore very welcome.

Prospective personal representatives

• The amendments introduce the concept of a “prospective personal representative”, meaning a person who has reason to believe that they will become a personal representative (PR) of the deceased member.
• This addition is very helpful. In consultation, practitioners had pointed out that where a person dies intestate, the individual’s next of kin will not have authority to deal with the estate until letters of administration are issued by the Probate Registry.
• Under the amendments, a prospective personal representative will have the same ability as a PR to give a withholding notice to the pension scheme administrator (PSA) – please see below.

Withholding notices: reminder

• The member’s PRs (or prospective PRs) may give a “withholding notice” to the PSA if the PRs (or prospective PRs) know that they are, or have reason to believe that they may be, liable to pay IHT on death benefits under the pension scheme.
• The withholding notice will have effect from receipt by the PSA until:
  • The PRs (or prospective PRs) withdraw the notice;
  • Any IHT plus interest in relation to benefit has been paid; or
  • 15 months after end of month of the member’s death.
• Where a withholding notice has effect, the PSA is prohibited from paying more than 50% of the beneficiary’s entitlement.
• The amendments clarify that a withholding notice will not prevent full payment of benefits to a spouse or civil partner (or another recipient exempt from inheritance tax).

Scheme pays: reminder

• The PRs or a beneficiary may give a direct payment notice to the PSA, requiring the PSA to deduct IHT (plus any interest) from the death benefit and pay this direct to HMRC.
• The PSA must pay the IHT within 35 days of receiving a valid direct payment notice, unless the IHT and interest is more than the unpaid benefits in the scheme, or if the amount due is less than £1,000.
• The amendments clarify that PSAs cannot be required to pay IHT from assets representing exempt or excluded benefits (such as benefits for a spouse/civil partner or death in service benefits).

Exempt transfers

• Pension scheme death benefits payable to a spouse, civil partner, charity or registered clubs are exempt from IHT.
• The amendments will extend the exemption to pension scheme death benefits paid to a political party, housing association, for national purposes or for the maintenance of historic buildings.

Impact on lump sum and death benefits allowance

• The amendments will ensure that, where multiple lump sum death benefits are paid, the member’s available lump sum and death benefit allowance (LSDBA) is apportioned fairly between the different lump sum death benefits, regardless of how any IHT due is paid.

Preventing double taxation

• Complex technical amendments to the Income Tax (Earnings and Pensions) Act 2003 will prevent a benefit being subject to both IHT and income tax (or the special lump sum death benefit charge), whether the IHT is paid by the beneficiary, the PRs (and recovered from the beneficiary) or the PSA (with the beneficiary’s benefits adjusted accordingly).
• For this purpose, references to “inheritance tax” will include any interest paid on the IHT.

Exclusion of overseas schemes for non-UK residents

• Interests in a pension scheme established outside the UK will not be included in a member’s IHT estate if the member was not a long-term UK resident.

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The Pensions Protection Fund confirms a zero levy for conventional schemes for the year 2026/27

The Pension Protection Fund (PPF) has confirmed that it will not charge conventional schemes a levy next year (2026/27).

The PPF will maintain an Alternative Covenant Schemes (ACS) levy, but states that it expects this ACS charge to be "low" and "proportionate to the risks posed".

The PPF notes that schemes are still legally required to submit an annual scheme return submission in full via Exchange, including section 179 valuations and asset-backed contribution information. However, the announcement also confirms that schemes will no longer need to provide:

• Voluntary information that was previously submitted via Exchange solely to obtain a levy saving, such as deficit reduction contribution and contingent asset certifications.
• Any data previously submitted directly to the PPF, such as asset-backed contribution certificates and contingent asset documents.

More detail on the zero levy announcement and information requirements can be found in the PPF’s Q&A document.

The PPF also reminds schemes that the Dun & Bradstreet insolvency risk portal will close from 1 April 2026, and prompts schemes to download any information they require by 31 March 2026.

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HMRC Pensions Newsletter 178: normal minimum pension age

HMRC’s Newsletter 178 includes information about the increase in normal minimum pension age (NMPA) from 55 to 57 from 6 April 2028. Points to note include:

• Work is ongoing on transitional regulations, to ensure that individuals who are already receiving pension benefits before the increase in NMPA may continue to do so. HMRC will share further details in a future newsletter when the draft regulations are ready for technical consultation.
• HMRC reminds administrators of the conditions for retaining a protected pension age (PPA) on individual or block transfers and refers to guidance in the Pensions Tax Manual (PTM062250 which covers rights to keep a PPA of 56 or 57 following a transfer).
• HMRC comments that it is helpful for members to be informed of any potential considerations associated with transfers. Where a receiving scheme has not been informed of PPA details on a previous transfer in, HMRC suggests that the transferring scheme considers sharing this information retrospectively, to help members and schemes have accurate PPA information before 6 April 2028.

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The Pensions Regulator issues its February Regulatory Round-Up

The Pensions Regulator (TPR) has circulated its February Regulatory Round-Up. This summary is sent to trustees, advisers, employers and scheme managers who subscribe to it via Exchange.

Key items covered include:

• A prompt to report suspected pension scams via the new Report Fraud service (replacing Action Fraud), together with a link to join TPR's industry scams action event.
• A reminder of the 8 March deadline for submitting responses to the Value for Money Framework (VFM) consultation.
• A reminder that TPR has made some minor updates to its superfunds guidance and new modelling analysis, noted in our February bulletin.
• A reminder that eligible defined benefit (DB) and hybrid schemes have until 31 March 2026 to complete the 2026 scheme return.

TPR notes that there are two key updates to the return. Some schemes will be required to provide a more detailed breakdown of the unquoted/private equity asset class. TPR is also seeking from schemes with leveraged liability-driven investment (LDI) arrangements insight on how they prepare for collateral calls under extreme market conditions.

By law, trustees must provide TPR with a scheme return unless the scheme has only one member or another exemption applies. If a scheme return is not completed and submitted by the deadline, it will be a breach of the Pensions Act 2004 and trustees could face a fine.

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The Pensions Regulator: design defaults for different lives

The Pensions Regulator (TPR) has issued a blog reflecting on the impact of different life patterns, in particular career breaks, on pension outcomes. It includes analysis of the effect of a five-year career break, demonstrating that a break in the first 10 years of working life has a greater detrimental effect on ultimate pension pot size than time away from work later in life.

TPR comments that career breaks are “common, predictable and economically significant” and encourages schemes to develop default strategies which reflect the reality of contemporary working lives.

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The Pensions Ombudsman determines that a professional independent trustee is 80% liable for losses following insufficient due diligence on investments

The Pensions Ombudsman (TPO) has determined that the independent trustee of a number of small self-administered pension schemes (SSASs) was 80% liable for losses suffered by co-trustees and members of those schemes in relation to certain high-risk investments.

TPO did not uphold a similar complaint against the administrator.

TPO treated the complaint as a "lead case", which covered certain other linked complaints, and is a relatively unusual example of TPO apportioning liability.

Background

The three individual complainants had been advised by unregulated advisers to invest in certain high risk investments via SSASs with Rowanmoor Group Plc (Rowanmoor). Consequently, the complainants each became member-trustees of a single-member SSAS. Rowanmoor Trustees Limited (RTL) (a subsidiary of Rowanmoor) was an independent trustee and co-trustee of each SSAS. Two of the complainants signed a "client agreement" with RTL, through which RTL would provide "trustee services".

Each SSAS had different underlying investments, but had a similar structure and governing documentation. Rowanmoor acted as the administrator of each SSAS.

Rowanmoor wrote to the complainants, clearly stating that the proposed investments carried a "high risk", were not endorsed or recommended by them; and "strongly" recommended that the complainants take legal and other professional advice. The letter also purported to exclude liability in relation to the investments "to the maximum extent permissible by law".

The extent to which the letters were intended to cover RTL was not clear, although they referred in places to the Rowanmoor group, which would include RTL.

The investments turned out to be "effectively worthless". The member-trustees complained to TPO, claiming that Rowanmoor, including RTL as trustee, had failed to perform sufficient due diligence in relation to the proposed investments.

TPO's conclusions

TPO rejected the complaints in relation to Rowanmoor as SSAS administrator. TPO considered the terms of the "client agreements" and concluded that the administrator had discharged its responsibilities "in a broadly satisfactory manner".

However, TPO upheld the complaints against RTL, which had "installed itself as a joint trustee" and was providing its professional services as an independent trustee to each SSAS for a fee. TPO believed that this made RTL a professional trustee, and, as such, RTL had additional responsibilities and duties.

TPO concluded that the investments were not ones which any reasonable trustee would have made. This breached the duty of care owed by RTL as trustee and fell below the standard of care owed by RTL to the complainants. In reaching this conclusion, TPO considered the economic and factual circumstances, and knowledge available, at the time the investments were made. TPO also considered the broader context; in particular, the circumstances of the individual members, the nature of the pension schemes and the need for diversification of investments.

Apportionment of liability

TPO noted that the complainants were member-trustees of the SSAS, and co-trustees with RTL. Under each SSAS's trust deed and rules, trustee decisions on investments required unanimity.

TPO contrasted the position of the complainants (who did not have the knowledge or understanding to assess the suitability of the investments) with that of RTL (who was "uniquely placed", both in terms of being able to apply professional judgement as to the suitability of the proposed investments, and also to prevent the investments from proceeding if they were unsuitable).

TPO asserted that RTL had not tried and failed to fulfil its duties; instead, it had "failed to understand its duties and make any attempt to meet them, notwithstanding that it appeared to continue to charge for those services".

In conclusion, TPO found that an 80:20 apportionment of liability, between RTL and the complainants respectively, was appropriate, having taken account of RTL's status as a professional trustee with considerable experience of SSAS management and trusteeship.

Directions and award

When calculating financial redress, TPO used methodology that aimed to put the complainants back into the position they would have been in, had the investments not taken place (recognising the complainants' partial liability as co-trustees). This included the recovery of costs and taxes, and that the complainants should not be left with any ongoing liability for future costs and charges relating to the investments.

TPO declined to order payment directly to the complainants; and instead directed that the payments be made to the SSASs, noting that the complainants would be able to transfer their monies to a different arrangement.

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The Pensions Administration Standards Association: publishes final part of its Digital Transformation Guidance

On 26 February, the Pensions Administration Standards Association (PASA) published the final part of its series of guidance on delivering effective digital transformation in pensions administration: Part 3: Implementing Saver-Centric Digital Administration.

The guidance focuses on how schemes can translate digital transformation strategy into delivery; and highlights the importance of designing digital administration around saver needs and expectations, supported by scalable infrastructure, integrated systems and a culture of continuous improvement.

The guidance explores several key considerations, including:

Saver centricity and engagement

Technology should be designed around the saver experience to deliver lasting value.

Every architectural decision should be tested against a single question: "How does this improve our members’ experience?". Schemes should aim to deliver real-time architecture, minimise delays in processing and deliver a seamless user experience.

The guidance also provides practical advice on how digital transformation approaches and roadmaps should reflect the scheme’s maturity.

Change management

Schemes investing in robust change management capabilities (broadly, supporting individuals in adapting to new technologies whilst ensuring projects deliver the intended benefits) position themselves for success regardless of scheme size or maturity level. This involves reshaping organisational structures by redefining what people do in their roles and creating a culture where everyone is comfortable with continuous learning and change.

The guidance sets out four phases of transforming how organisations work: (i) getting ready; (ii) building awareness and buy-in; (iii) building knowledge and skills; and (iv) "making it stick".

Implementation and delivery

The traditional approach of replacing entire systems through "big bang" implementations can introduce significant risk, and is often unnecessary. Implementation components should be treated as evolving ecosystems. They should be developed component by component, rather than as static monolithic systems.

The guidance outlines common implementation approaches, and notes that the appropriate model will depend on scheme maturity, risk appetite and operational resilience.

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The Pensions Administration Standards Association launches trustee-administrator engagement series

On 2 March, the Pensions Administration Standards Association (PASA) published the first part of a new four-part trustee-administrator life-cycle series: Part 1: Why Trustee-Administrator Relationships Matter.

The series responds to increasing regulatory expectations, operational complexity and sustained pressure on administration services. It aims to promote clear engagement, strong governance frameworks and collaborative working practices between trustees and administrators. It is accompanied by practical tools and examples, including case studies and a suggested "Balanced Scorecard" to support performance measurement.

The first part sets the strategic context for the series and highlights why effective administration oversight is a core governance responsibility. It reinforces the principle that "administration is where governance becomes reality".

Subsequent parts will examine appointment, transition and the development of sustainable, high-quality trustee–administrator partnerships.

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Authored by Jill Clucas and Susanne Wilkins.