Pensions Essentials - May 2026

TPR has published a 2024 determination notice in relation to the Danapak Flexibles Retirement Benefits Scheme. Parts of the determination were appealed to the Upper Tribunal, who published their decision in August 2025. 

The case is worth noting because it involved contribution notices being issued where a company was still trading and took into account the weak employer covenant and long recovery plan. It also adopted a wide meaning of when an individual might be a “party” to an act which caused material detriment to members. 

Background: Several family businesses were owned by CW, PW, AP and their parents, including DFL, the principal employer in relation to the Scheme. DFL was bought by DFH for £1 in 2008 and sold for the same amount in 2019.  

As of 2015, DFH was owned by CW, PW, AP and another family member and CW proposed that the other family members should sell their shares to himself and EW, his wife. This was agreed and the £800,000 purchase price was funded by DFL’s drawdown facility with RBS. This amount remained outstanding in 2019. 

In 2020, the Scheme had assets of £22.8m and a buy-out deficit of £24.8m. Concerns were reported to TPR.

The Regulator issued warning notices in relation to the issue of contribution notices to CW, EW, PW and AP. CW and EW settled before a determination was made.

Determination: TPR had to consider whether PW and AP were “party to” an act that caused material detriment. It concluded that they were on the basis that they were told that the funds used to purchase their shares were derived from a drawdown facility by DFL and they had the opportunity to refuse to proceed with the transaction.

In relation to whether the act materially affected the likelihood of accrued benefits being received, TPR said that £800,000 was significant in relation to the net asset position of the employer. In addition, as the Scheme had a long deficit repair plan and an employer with a weak covenant, it was reasonable to conclude that using significant financial resources was a matter of materiality so far as the security of the Scheme was concerned.

TPR also concluded that it was reasonable to issue contribution notices on the basis that AP and PW should have responded to the proposal to purchase their shares by raising questions as to how the purchase price was to be funded and what impact it might have on the Scheme.

Upper Tribunal: AP appealed and the Upper Tribunal upheld the imposition of the contribution notice. It was not reasonable for her to have acted in the way that she did. She was a director of DFL and should not have allowed it to weaken its resources without making sure that the interests of all stakeholders were protected. She did not ask any questions or take any advice with a view to discharging that responsibility.

Guidance for trustees: TPR’s preliminary guidance says that trustees must ensure their scheme is well run regardless of who is making day-to-day decisions, and this includes understanding where and how AI is being used.

To achieve this, TPR has a number of expectations of trustees.

Trustees should establish clear governance practices which identify and evaluate risks and put appropriate controls in place. They also need to carry out testing and ongoing monitoring in relation to AI usage and ensure that administrators, advisers and providers also have appropriate AI governance systems in place. In addition, trustees must make sure that they are aware of potential AI scams and frauds, and work to protect members.

Trustees and administrators should both invest appropriate time and resources to understand AI technologies and relevant UK guidance and emerging standards. They should also be transparent with members and stakeholders about AI use, where appropriate.

Accurate data is also important in relation to AI usage. Trustees need to ensure that scheme and member data is of high quality where it forms a critical input into AI-supported processes. Trustees should also understand how AI models use and process data and ensure there are robust controls in place.

If trustees or administrators are considering implementing an innovative use of AI, they should seek appropriate and proportionate professional advice.

What TPR will do: TPR says that it intends to “publish guidance in 2026 on the responsible adoption of AI for pension schemes, following engagement with the pensions industry on AI use in schemes and their supply chains”.

Understanding how evolving AI technologies are being used will be critical to ensuring TPR’s regulatory approach remains fit-for-purpose, so it intends to engage with industry to determine trends and report on progress.

The guidance is a useful reminder that trustees should engage with how AI is being used in their schemes and the risks that it could potentially pose to members.

Background: In July 2025 the Government set up a new Pensions Commission, which was tasked with looking at why tomorrow’s retirees risk being worse off than today’s and making recommendations to address this.

Interim report: The Commission has published its interim report setting out its findings, which include:

• Low and middle earners are most at risk of having insufficient retirement income, with around half saving only at automatic enrolment minimum levels.
• 45% of working-age adults - around 18 million people - are not saving into a pension at all.
• Where employers are contributing above the statutory minimum this largely benefits higher earners.
• Only 4% of the wholly self-employed are saving for retirement.
• Around 3 in 10 pension pots are accessed as early as possible, with half of all pots taken out in full in cash. There is significant expenditure on large expenses like cars, holidays or renovations.

Next steps: No recommendations have been published yet: these are due in early 2027. However, the issues that need to be considered include:

• Higher rates of pension saving and higher coverage;
• Automatic enrolment eligibility, earnings thresholds and minimum contributions; 
• The existing non-means-tested State Pension is critical to the retirement incomes of most pensioners but a means-tested safety net will remain necessary;
• Adequate incomes in retirement are affected by the way savings are taken, and there must be stronger guardrails around this and a lower burden of risk passed to individuals;
• Adequacy requires people to lead longer working lives. Higher employment rates are required, particularly for those in their 50s and early 60s.

Background: Legislation setting out a new regime for imposing inheritance tax (IHT) on unused DC pots and some death benefits is set out in the Finance Act 2026 and is due to come into force in April 2027.

In the meantime, HMRC has issued a technical note which expands on the legislation and gives more supporting information on how unused DC funds and in-scope death benefits will be treated. It has also launched a consultation on the information regulations that set out how information will be shared between scheme administrators and personal representatives (PRs).

PRs will need to identify any pension schemes from which death benefits may be payable and contact them to inform them of the death and request the value of “notional pension property” (the term used for in-scope benefits).

PRs will be responsible for reporting and paying any IHT but scheme administrators (who are typically the trustees) also have significant obligations in relation to providing information, withholding benefits and (potentially) paying tax that they need to be aware of and which their administration systems will need to accommodate.

Valuation: The technical note sets out how schemes should value notional pension property and which types of benefits are excluded. Although payments to certain beneficiaries (such as spouses and civil partners) are exempt from IHT, in-scope benefits payable to them will still need to be included in value calculations.

Information sharing: Information on the value of notional pension property should be provided to PRs within 28 days of a request, and if the scheme administrator cannot do so, they must provide an estimated value and the basis for that estimate. They must also tell PRs the final value within 14 days of obtaining it.

The scheme will also need to identify how notional pension property is to be split as between IHT exempt and non-exempt beneficiaries. This should be done within 28 days of a request or, if later, 14 days after the beneficiaries have been determined.

If PRs need to submit an IHT account to HMRC, they can ask the scheme to provide further information for that purpose. The information the scheme must provide includes each beneficiary’s name, address, NI number and the value and percentage of the notional pension property being used to pay benefits to them. Again, the 28-day / 14-day time limit described above applies.

Withholding: A withholding notice allows PRs to instruct a scheme administrator to withhold up to 50% of an individual’s benefit entitlement under the scheme. This helps to protect PRs and other estate beneficiaries from having to use non‑pension assets to meet the IHT liability.

A withholding notice can be given at any time up to 15 months after the end of the month in which the member died, and only has effect within this period. However, once beneficiaries are determined, scheme administrators should not delay distributing benefits where they have not received a withholding notice, even if it is within the 15-month period.

A notice ceases to have effect when it is withdrawn by the PRs, the IHT (and interest) is paid, or the 15 month period has expired - whichever occurs first.

There will be an HMRC template which sets out the information that a withholding notice must include. Administrators must acknowledge receipt of the request within 14 days and notify beneficiaries about a withholding notice within 14 days.

Direct payments: PRs and beneficiaries can issue a notice requiring scheme administrators to pay the IHT due (and interest, where relevant) in respect of a scheme benefit directly to HMRC. Where a valid payment notice is received, the scheme administrator must pay the amount specified within 35 days.

There are no restrictions on when a payment notice can be given; however, if there are insufficient funds left to cover the amount specified in it, it will not be valid. HMRC will issue a template notice.

To determine whether a notice is valid, the scheme administrator will need to consider a number of things including whether the IHT (and interest) required to be paid is an exact amount of at least £1,000 and whether the notice includes other required information specified by HMRC (eg, the capacity (beneficiary or PR) in which the individual is issuing the notice).

The scheme administrator can deduct the amount paid from benefits on a “just and reasonable” basis. This means that there must be available funds in the scheme and if a withholding notice is in place, the tax and interest can be deducted from withheld amounts.

Income tax: If a benefit would be subject to income tax, the proportion of the benefit corresponding to any IHT liability will not count as taxable income.