Preparing for pension reform

Ongoing reforms to the UK pensions landscape are reshaping the options available to employers. Increased regulatory scrutiny, improved funding levels and a wider range of scheme structures mean it is important for organisations to consider how their pension arrangements support long-term workforce and business objectives.

Pension schemes can have a direct and often material impact on corporate financial planning. In anticipation of significant legislative and regulatory change ahead, employers should take the opportunity to review their long-term objectives and assess which route for their pension scheme best aligns with their corporate priorities.

Surplus

Many defined benefit (DB) pension schemes are currently enjoying record funding levels – and forthcoming reforms will allow employers greater freedom to access pension scheme surplus.

From April 2027, trustees will have a new statutory power to amend their rules to enable surplus to be released from ongoing schemes and shared with employers and/or members in specific circumstances.

Employers with schemes already in surplus – or likely to reach that point – should begin discussions with the scheme’s trustees and legal advisers on how these reforms may apply and align with longer term plans for pension schemes. There are more innovative options and flexibilities at present than there have been in recent times, so it is a good time to engage with this topic.

Buy in / buy out

For sponsors seeking a full risk transfer, buy in to buy out remains a key option – subject to appropriate pricing and capacity in the market. Smaller schemes may see opportunities emerge as market capacity expands.

This requires careful preparation, including data readiness, funding considerations and a clear project plan. Early horizon scanning can help ensure employers are well positioned when favourable pricing or insurer availability arises.

Superfunds

For schemes that are not funded to buy out level but still seeking a full risk transfer, a DB superfund may provide a viable and more affordable alternative to an insured buy out. The forthcoming Pension Schemes Bill will introduce a statutory authorisation and supervision of DB superfunds, encouraging more entrants to the market, and thereby giving schemes greater choice.

As more providers come to market and DB superfund options become available, employers should monitor developments closely.

Collective Defined Contribution (CDC)

CDC schemes are expected to become more widely available following upcoming reforms. Offering the potential for higher returns for employees than a DC option, and a predictable and affordable rate for the employer, CDC may appeal to employers seeking to offer a more generous pension provision.

For employers concerned about employees’ retirement income, or facing recruitment or retention challenges, CDC could represent a meaningful solution. Employers will need to understand how CDC fits alongside existing arrangements, who the right providers are, and whether it is the best option in the context of their workforce.

Master trusts

Master trusts are now well-established in the UK pensions market, providing value for money through economies of scale and a reduced governance burden, and flexible retirement options for members. They can be an attractive alternative for employers looking for a simple replacement for an in-house pension scheme, or in preparation for a merger or wind-up.

Employers exploring this option should carefully consider the selection process, the implications of transferring scheme liabilities to, and participating in, master trusts.

Salary sacrifice

‘Salary sacrifice’ arrangements remain a widely used method of supporting pension savings and offering tax efficiencies. Currently, the employer only pays NICs on the employee’s lower post-sacrifice level of salary, with some employers also passing on part of the NIC saving they make to the employees. However, from April 2029, proposed changes mean that salary-sacrificed pension contributions above an annual £2,000 threshold will no longer be exempt from NICs – a significant reduction.

Employers should consider how this might affect their reward strategies, and their employees. Early assessment will help mitigate disruption and enable clear planning for contractual and consultation requirements.

Next steps

With significant legislative and regulatory change on the horizon, employers should be considering their pension arrangements now:

• to understand the impact of the reforms

• to explore whether new structures or funding opportunities are an option

• to prepare for practical issues such as employee consultation, contractual changes, and communications.

If you would like to understand how these developments may affect your organisation, please get in touch with a member of the TLT Pensions team.

For wider employment law developments, you can access TLT’s latest Employment Law update here.

How TLT supports employers

We provide expert advice on pensions law and regulation (including change and restructuring projects), the implications of corporate transactions, and managing pension liabilities.

With extensive experience advising both private sector employers and trustees on schemes of all types and sizes, alongside expertise in all the major public service pension schemes, we can help you navigate the pensions landscape with clear, practical advice.