Bill to cap National Insurance Relief for Pension Contributions
Glyn Bradley, Kirsty Cotton, Dave Roberts | December 11, 2025
Hot on the heels of the UK Budget 2025 the Government has introduced two new Bills to Parliament to put its proposals into law. This article covers the National Insurance Contributions (Employer Pensions Contributions) Bill. This limits the National Insurance Contribution (NIC) relief for both employers and employees where the employer makes a contribution for the employee under a salary sacrifice arrangement (where the employee agrees to give up part of their earnings in return for the employer making that contribution). From 6 April 2029 primary and secondary (employee and employer) Class NICs will be chargeable on any sacrificed earnings above £2,000 a year. As now, sacrificed contributions will continue to be free of income tax (and subject to the annual allowance). Existing NIC reliefs will continue to apply, e.g. for employees above State Pension Age.
The Bill will build on existing optional remuneration arrangements (“OpRA”) provisions to recapture earnings where an employee has opted or agreed to give up in return for other benefits.
NICs are based on pay periods for each job that an individual has. Consequently, the £2,000 annual limit will be specified on a proportional basis for shorter pay periods.
HM Treasury Guidance: Changes to salary sacrifice for pensions from April 2029 states that “Employers will need to report the total amount sacrificed through their existing payroll software. HMRC will engage with stakeholders on this and publish further guidance on this.”
Details on the design and operation of the £2,000 contribution limit will be set out in secondary legislation in due course, following stakeholder engagement.
Finance Bill: Inheritance Tax and Pension Benefits
Kirsty Cotton, Dave Roberts, Glyn Bradley | December 11, 2025
As expected, following the UK Budget 2025 the Government has published a Finance Bill – the Finance (No. 2) Bill – so-called because we’ve already had one (which became Finance Act 2025) within the current parliamentary session. This new Bill is likely to become the Finance Act 2026.
The element of biggest interest to pension schemes is the inheritance tax (IHT) measures, which will bring pension death benefits into scope of IHT for deaths on or after 6 April 2027.
During the summer of 2025 the Government had announced plans for what it calls in its Policy paper: Inheritance Tax – unused pension funds and death benefits the “Pensions Direct Payment Scheme” (PDPS). The draft measures published in the summer have now had a significant rewrite, in response to comments made by both the pension schemes industry and also estate practitioners. The summer proposals were to give pension scheme beneficiaries the power to direct Pension Scheme Administrators (PSA – in HMRC’s sense, i.e. usually the trustees or managers of a scheme, but in practice their powers are usually delegated to the day-to-day administrator) to pay IHT amounts over £4,000 within three weeks of a request to pay; amounts below £4,000 would be at the PSA’s discretion. That threshold has been brought down to £1,000 in the Bill, and the deadline extended to five weeks. Furthermore, the deceased’s personal representatives (“PRs”, i.e. executors and administrators of the member’s estate) are now able to use the PDPS to direct the PSA to settle IHT directly with HMRC – previously they would have needed the pension scheme beneficiary to give the instruction.
The Bill allows PRs to draw a line under their liability for IHT in respect of pension schemes. Once they have a certificate from HMRC that all IHT believed due has been settled then the PR will not be liable for any IHT arising from a later-discovered pension scheme (unless due to PR’s “carelessness”). Instead, any later liability arising would be the responsibility of the scheme beneficiaries.
The Bill also introduces a new power for PRs to give PSAs a withholding notice on the death benefits payable by the scheme. This would prevent the scheme from paying out more than 50% of the death benefits potentially subject to IHT, thereby reducing the risk that the PR couldn’t use the PDPS. The withholding power would not restrict the payment of exempt benefits (such as certain death-in-service benefits, dependants’ scheme pensions or reversionary annuities), nor payments to exempt beneficiaries (i.e. most spouses/civil partners, charities, and registered clubs). The withholding notice would be valid for up to 15 months after the member’s death, or until the notice was withdrawn by the PRs or all the IHT (including interest) relating to that member paid.
HMRC hopes to publish FAQs in early 2026, with formal consultation on draft regulations including the information requirements expected in the spring/summer of 2026; further guidance is expected to be published in spring 2027.
Aside from IHT, the Bill also includes a minor fix to allow unconnected multiple employer schemes (UMESs) to provide collective defined contribution (CDC) benefits and count as an “occupational pension scheme” for tax purposes.
HMRC newsletter 175: DB surplus and lump sum payments
Kirsty Cotton, Dave Roberts | December 11, 2025
In November’s Newsletter 175, HMRC provided some information additional to that included within the Budget documentation regarding defined benefit (DB) surplus payments to individuals over NMPA. These will be permitted from 6 April 2027 and the Newsletter explains that the scheme “must be in surplus on the same funding basis as applies to payments to employers”. It also stated that the legislation for these payments would be included in Finance Bill 2026-27.
