The Finance (No. 2) Bill includes two measures which flow from the Raising standards in the tax advice market consultation published in March 2024. In Budget 2025, HMRC confirmed that they would not be taking forward the other ideas in that consultation, but would instead continue to work in partnership with the sector to raise standards in the tax advice market.
The first measure in the newly-published Finance Bill confirms HMRC’s intention to press ahead with its proposals to require ‘tax advisers’ to register with HMRC in order to continue to deal with it in relation to their clients’ tax affairs. The Explanatory Note states that the new requirements will apply from May 2026, but there will be a three-month transitional period from that date for registration to be completed, although this might be extended in certain circumstances. Tax advisers who fail to register might face punitive sanctions.
‘Tax adviser’ is very widely-defined in the Bill and relates to activities carried out, rather than job titles. The activities encompass provision of tax assistance to others ‘in the course of a business’. Tax assistance is deemed to be given if someone, for example, ‘advises the [client] in relation to tax; … provides assistance with any document that is likely to be relied on by HMRC to determine the [client’s] tax position’.
In pensions schemes newsletter 176, HMRC confirms that:
As the purpose of this legislative initiative is to improve standards in the tax advice market, the second measure in the Bill relates to the conduct of tax advisers; updated provisions will penalise those who ‘intentionally seek to facilitate non-compliance in their clients’ tax affairs’. This provision applies from 1 April 2026 and seeks to dissuade tax advisers from engaging in conduct that has the ‘intention of bringing about a loss of tax revenue’ whether or not the conduct in question is dishonest.
As proposed in a policy paper in July 2025, HMRC is legislating for the power to issue a file access notice to a tax advisor without pre-approval of a tribunal. However, that power has now been restricted to information on those clients in respect of whom HMRC has reasonable grounds to suspect the tax adviser is engaging in sanctionable conduct.
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On 3 December 2025, the Pension Schemes Bill (“PSB”) completed its House of Commons stages and passed to the House of Lords, having its First Reading on 5 December. Second Reading in the House of Lords is scheduled to take place on 18 December. Several amendments were introduced during House of Commons Committee and Report stages.
The headline-grabbing change, as announced in the Budget Speech, was the introduction of a degree of inflation-proofing for many members of the Pension Protection Fund (PPF) and Financial Assistance Scheme (FAS) on the compensation derived from their pre-6 April 1997 accrual. However, there were other noteworthy changes, including the so-called ‘Virgin Media’ clauses. Both the PPF and Virgin Media amendments have relevance to members of defined benefit (DB) plans only. For defined contribution (DC) schemes, the small changes to the small pot consolidation measures and how ‘main scale default arrangements’ will be determined are likely to be of greater interest. We set out the changes in these areas in more detail below.
For completeness, many of the measures included in the original PSB remain materially unchanged, including the proposals relating to surplus sharing, Superfunds, Value for Money and Guided Retirement.
In the Budget speech, the Chancellor announced plans to “index for inflation on pensions accrued before 1997 in the Pension Protection Fund and the Financial Assurance Scheme, so that people whose pension schemes became insolvent no fault of their own, no longer lose out as a result of inflation”.
The detail of the legislative changes is not quite so wide-ranging. Compensation in relation to pre-6 April 1997 accrual will receive a degree of inflation-proofing (capped at 2.5%), but only where the scheme that was admitted to the PPF/FAS provided for inflation-proofing ‘as of right’. Where a scheme provided for a greater level of inflation-proofing, members of that scheme will lose out by the degree of difference between what their former scheme provided and the new capped inflation-proofing.
This measure also extends to any compensation derived from any accrual between 6 April 1988 and 5 April 1997, where there was GMP accrual.
In addition to this change, amendments remove the PPF Administration and Fraud Compensation Scheme levies, rolling them into the normal PPF levies as and when needed in future.
Other PPF provisions remain unchanged, including extending the period (from six to twelve months) for which a member is expected to live when considering granting terminal illness lump sums and providing PPF/FAS data to Pensions Dashboards.
In a welcome move, the Government introduced amendments to the Bill in September 2025 to help address the issues faced by DB schemes that had been contracted-out on a salary-related basis and that had made rule amendments requiring evidence of actuarial assurance that the changes made would not prejudice the ability to be contracted out.
Further amendments, introduced at the Report stage, have added clarity by confirming that sections of a scheme that have wound up (not just where the whole scheme has wound up) are presumed to have complied with the statutory requirements. The definition of ‘positive action’, which would prevent use of the new easement, has also been amended so that only cases where the trustees have notified beneficiaries that they are acting (or have acted) as if a particular scheme rule change was ineffective will be excluded from the retroactive justification provided for under the PSB. There are also helpful clarifications on when legal proceedings are deemed to have commenced prior to 5 June 2025 (the date on which the PSB was published), as such cases will be precluded from using the retroactive affirmation.
Finally, the provisions themselves will come into effect on the PSB receiving Royal Assent, rather than two months thereafter as originally proposed.
When the PSB was first published in June, it proposed setting up a Small Pots Data Platform Operator (SPDPO) to collate information from schemes on small DC pots and to allocate them to a particular consolidator scheme. However, the Feasibility Review report published by Pensions UK in September suggested that this model would be expensive and unlikely to meet the Government’s 2030 deadline for dealing with small pot consolidation. Perhaps surprisingly, given the greater burden on pension schemes, Pensions UK recommended a ‘federated’ model where schemes themselves carry out the task of identifying a consolidator and arranging for the transfer of small pots.
This also contrasts with the Pensions Minister’s statement during the Committee stage that “international evidence …has shown that a central platform improves consolidation outcomes, rather than just putting duties on schemes to sort it out”.
The Government is, for the time being, keeping its powder dry and has amended the PSB to allow regulations to provide for a “destination proposer”, which might be an entity like the SPDPO or the trustees of the transferring scheme.
Government amendments were introduced at Report stage to provide for regulations to define the relationship that must exist between Master Trust(s) and/or group personal pensions for their assets to be pooled so as to meet the £25bn ‘scale test’.
These provisions are part of the Government’s drive to create ‘mega funds’ within DC pensions, aiming to achieve economies of scale and improve investment outcomes. The regulations will clarify how schemes can collaborate or aggregate assets to qualify, which is critical for providers considering consolidation strategies.
As highlighted in the introduction, the provisions relating to the extraction of surplus from ongoing schemes remains unchanged. Unsurprisingly, this topic was debated at length with many Members of Parliament responding to lobbying from pensioner groups seeking pension increases, particularly for benefits accrued before 6 April 1997. At the Report stage, the Minister confirmed that “our changes on surplus, which put trustees clearly in the driving seat, provide for more ability for trustees to seek to change that balance of power within their relationship”. He went on to say that he did “not want to prejudge the individual discussions between all trustees and their employers – those will be different in different circumstances”. Moreover, during the debate on PPF indexation and calls to compel schemes to provide pre-6 April 1997 indexation, the Minister stated “I want to be straightforward with the House that we do not support retrospectively changing scheme rules. Neither did previous Conservative or Liberal Democrat Governments, given that contribution levels were set on the basis of the scheme rules at the time they applied”.
The PSB will be debated in the House of Lords and further amendments may be introduced before it returns to the House of Commons. Notable, perhaps, was an Opposition amendment introduced at the House of Commons Report stage to clarify trustees’ fiduciary duties in respect of investment decisions This permissive proposal would have clarified that trustees can take account of wider social and systemic factors, as well as members’ views when deciding their investment strategy. The Pensions Minister stated that, rather than changing statute in this way, the Government would “bring forward legislation that will allow the Government to develop statutory guidance for the trust-based private pensions sector”.
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The Pensions Regulator (TPR) has updated its administration guidance to increase consistency across all scheme types. Key updates and expectations are:
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, eg 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.
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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.
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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.
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