Pensions Essentials - June 2026

Prior to 2021, if limited statutory requirements were satisfied, trustees had no choice but to make a transfer, even if they thought that the receiving vehicle might be a scam and that the member risked losing some or all of their savings. To combat this, regulations were introduced imposing additional conditions on transfers.

Under these regulations, transfers to schemes approved by TPR (eg master trusts) or public sector schemes do not need to satisfy additional conditions. However, transfers to most other schemes must do so. There are two types of transfer conditions that trustees need to consider:

• Amber flags: These include receiving scheme investments which are high-risk, unregulated, overseas or unorthodox and, in the case of an occupational pension scheme, the member failing to establish an employment link with a participating employer. Where an amber flag is present, a member must take guidance from MoneyHelper before the transfer can proceed and provide evidence they have done so.
• Red flags: Red flags include the member providing inadequate information or failing to take guidance if required, incentives being offered, pressure to transfer or unsolicited marketing. If a red flag is present, the member loses their statutory right to transfer, although the trustees may still decide to make a non-statutory transfer.

A review of the conditions concluded that whilst they were effective in reducing scam activity they also created “operational challenges that… may have at times created unnecessary friction for legitimate transfers”. The overseas investment amber flag has been particularly problematic as most legitimate schemes hold overseas investments.

As a result, the Government is consulting on several changes to the transfer conditions:

• Allowing transfers where “trustees are satisfied, on the balance of probabilities, that the transfer is to a ‘reputable’ pension scheme”. This will be for trustees to determine, but there is likely to be a non-exhaustive list of factors to consider, including whether there is an existing relationship with the receiving scheme, the risk profile of its investments, any prior warning flags and transparency on fees and charges.
• The overseas investment amber flag will be removed as the high risk and unorthodox investment flags provide sufficient protection. However, the incentives red flag will stay, because the harm it is addressing is not covered by any other flag.
• Failure to prove an employment link on a transfer to a small self-administered scheme (SSAS) will be a red flag (as opposed to an amber flag currently). This is because evidence suggests up to 10% of transfers to SSASs have been found to have elements of scams.

Consultation closes on 21 July 2026.

Over the years the ability of an employer to recover VAT on investment costs relating to a pension scheme has been subject to a number of different approaches by HMRC.

Its historic policy was that employers could not recover investment costs as they were not seen as being linked to its business.However, pre-Brexit, the European Court held that an employer was entitled to deduct VAT paid on services relating to both pension fund administration and investment if it could demonstrate that they were directly and immediately linked to its business.

HMRC struggled to find an appropriate way to implement this.However, it announced last year that from 18 June 2025, ”subject to normal deduction rules”, employers could deduct VAT incurred on all investment costs (as well as administration costs).

It promised updated guidance on this at the time and has now issued it. The updated guidance provides:

• If the employer contracts directly with a fund manager, it can deduct the VAT incurred.
• Invoices correctly made out to a trustee may not be re-issued to the employer. Any VAT on them is the trustees’ liability.
• If the contract for services is between a fund manager and the trustees, for the employer to deduct the VAT, the trustees should make a taxable charge to the employer for running the scheme on its behalf. The employer will then be able to deduct input tax on this charge. The trustees will need to be VAT-registered to adopt this approach.
  
  If trustees do this, input tax that they incur on related services will be deductible. This applies even where the services were specific to the trustees’ activities, provided those services are used to run the scheme. This analysis is not affected by any potential conflict between the trustees’ and employer’s interests.

Previously, guidance provided that VAT on administration charges could be treated as the employer’s input tax even where the contract was with the trustees, if the invoice was made out to the employer. This wording has been deleted, which possibly suggests a further change in practice from HMRC.

Overview: Under the Employer Debt Regulations, if an employer exits a multi-employer scheme, it can become liable to pay a debt to the scheme if there are insufficient assets to secure scheme liabilities with an insurer. The debt will be equal to the employer’s share of the shortfall.

In 2011, in the face of significant scheme deficits, there was a concern that this could “unnecessarily inhibit corporate activity, in particular… the ability of companies to restructure in order to be better able to deal with changes in the economic environment.”

As a result, flexible apportionment arrangements (FAAs) were introduced from 2012. They allow an exiting employer, to allocate any debt to remaining employers if it is reasonably likely they could afford to meet the debt and the allocation would not affect the security of benefits and the trustees agree.

FAAs have become a standard way of moving potential liability for section 75 debts from one employer to another to ensure that an exiting employer has no exposure to scheme funding on a future event e.g. winding-up. They are a feature of most cases of sponsor change (whether on an intra-group reorganisation or wider restructuring).

An FAA was used in the recent Stagecoach transaction, with trustee agreement, as part of effecting the assumption by Aberdeen of responsibility for the liabilities of the Stagecoach scheme.

Minister’s statement: The Pensions Minister has issued a statement saying that the FAA in the Stagecoach transaction, whilst complying with the legislation, was used in a way not anticipated when FAAs were introduced. The Government wants to encourage innovation, whilst ensuring “the right legislative guard rails” are in place.

As a result, the Government is planning to review the law relating to FAAs to “ensure the regulatory standards and safeguards evolve and keep pace with the innovation” in the market and with the aim of protecting members and the PPF. They will consult in due course on whether and, if necessary, how the existing FAA regulations could be adjusted.

Pensions Regulator: TPR has published a blog saying that buy-out is no longer the only endgame solution. Trustees have more options than ever, including running on with the intention of using surplus. New approaches should make trustees look again at their long-term objectives and consider whether there is potential to not just pay members their promised benefits, but also safely release surplus for the benefit of members and sponsoring employers.

However, the blog cautions that any new approaches must provide both security and value to members. TPR expects trustees, employers and advisers to engage with it early to clearly define how any proposal under consideration delivers a good outcome for members.

TPR also refers to the use of an FAA for the Stagecoach scheme. The trustee approached it to discuss options and TPR says its focus was to ensure member security was retained, the scheme could pay the promised benefits, and the trustee had followed good governance practices.

In relation to governance, TPR wanted to satisfy itself that the trustee had taken appropriate advice, demonstrated an appropriate level of due diligence and given consideration to the risks and opportunities as it sought to enhance member outcomes.

It says that the proposed consultation on FAAs is an opportunity for stakeholders to help shape a proportionate and effective approach for the future.

Ahead of any change in the legislation, TPR will consider an interim approach to transactions involving FAAs that present similar characteristics to the Stagecoach transaction, and will continue to work closely with DWP to ensure that the regulatory framework evolves in step with the market.

Reporting standards: Under the Dashboard Regulations, trustees are required to provide “operational information” to TPR, the FCA or the Money and Pensions Service (MaPS) in accordance with reporting standards issued by MaPS (via the Pensions Dashboard Programme).

Operational information is information relevant to the operation of the dashboards and compliance with dashboard obligations, and includes the number of find requests received, the matching process used, the number of matches and queries and complaints from members about the information received.

In the current version of the reporting standards, the relevant information must be made available to MaPS on request. The PDP consulted earlier this year on changing this to require information to be submitted automatically on a daily basis. The PDP has confirmed that it intends to go ahead with this proposal. Mandatory daily reporting will start in March 2027, but voluntary daily reporting will be expected from November 2026.

PASA guidance: PASA has published guidance to help schemes, providers and administrators monitor ongoing compliance with dashboard requirements.

The guidance focuses on the practical issues with monitoring compliance across three key areas of dashboards activity: matching, providing pension information and connection performance. It also considers the role of member queries, complaints and feedback in identifying potential issues.

PASA has also published a note on survivor benefits which addresses issues regarding the flagging of the existence of such benefits when providing value data, and provides practical guidance.