Proposed changes to UK defined contribution (DC) pensions are set to increase the focus on value for money, scheme governance and administration, while upcoming inheritance tax changes could create additional responsibilities for pension providers and employers.
Discussions at Law Debenture’s recent pension sponsor forum focused on three key areas: the government’s proposed value for money framework, employer oversight of master trusts and the inclusion of unused pension funds within inheritance tax rules from April 2027.
The proposed value for money framework aims to assess pension schemes against investment performance, costs and the quality of services provided to members. The approach could encourage further consolidation as larger schemes seek to demonstrate better outcomes and greater efficiency.
Larger pension schemes may also have more capacity to invest in technology, administration and diversified investment strategies. This includes access to less liquid assets through structures such as Long Term Asset Funds (LTAFs).
However, questions remain about how schemes will be compared fairly, particularly where membership profiles, investment strategies and service arrangements differ.
Employer responsibilities are also under consideration as more organisations move their workplace pension arrangements into master trusts. Although outsourcing pension provision can reduce the administrative burden, employers still need to monitor scheme performance and ensure employees receive appropriate support.
Governance committees can provide ongoing oversight, allowing employers to review pension arrangements, monitor service standards and communicate with employees. Providers are increasingly supporting these committees through management information, online dashboards and regular meetings.
Inheritance tax changes are another significant issue for pension administrators. From April 2027, unused pension funds are due to be included within the scope of inheritance tax, potentially increasing the administrative work required when a member dies.
Pension administrators may need to introduce new processes to manage the additional tax requirements, including coordinating information and payments with personal representatives. Employers with responsibility for death-in-service arrangements may also need to review their existing procedures.
Law Debenture has been working with pension administrators to assess their readiness for the changes, including whether existing systems and workflows can accommodate the additional requirements.
Law Debenture Corporation plc (LON:LWDB) provides a wider range of services including corporate and pension trusts, process agent services, treasury management, corporate services including for special purpose vehicles, structured finance administration and whistleblowing services.
