Pensions law update: July 2026

LGPS – Fit for the future

The finalised LGPS pooling and investment, and governance regulations were published alongside MHCLG’s response to its technical consultation on implementing the Fit for the Future policy changes, towards the end of May, and came into force on 30 June 2026.

In this article Louise Pettit and Alec Bennett consider the consultation response, identify key changes from the draft regulations that were consulted on and highlight areas where further detail is awaited in the statutory guidance.

Please note that following publication of this article the statutory guidance was subsequently published on 29 June 2026 – read our hot off the press World Cup themed update:

Focus on governance

VAT: an important update for schemes and sponsors

Readers may recall that an HMRC policy change on VAT recovery for DB pension scheme costs was announced in June 2025, and was welcomed by the industry as a relaxation of the rules, particularly in respect of VAT on investment management costs which would potentially be recoverable in full by the employer under normal VAT rules (rather than apportioned between trustees and employer as had previously been the case). Further guidance on the change was expected in Autumn 2025, but this didn’t appear until almost 12 months later when changes were made to HMRC’s internal VAT manual on 4 June 2026.

Unfortunately, those changes have introduced some doubt about how far the 2025 relaxation extends in practice, and also in relation to whether a costs invoice addressed to an employer can be used to support input tax recovery. This is because the long-standing exemption in VIT4470 which allows service providers to address invoices for administration services to sponsoring employers has been unexpectedly archived. The exemption enabled the employer to reclaim VAT even where pension trustees were the contracting party to the services and paid the invoices.

It is unclear whether HMRC intended to make a change to this practice as the updates to the manual were made without consultation or prior notice and some parts of the HMRC guidance now appear inconsistent. The pensions industry is engaging with HMRC and awaiting further clarification to confirm the intention of the latest manual updates.

Given the uncertainty and unexpected nature of the change, we expect a number of scheme advisers will continue with their existing practice of issuing invoices in the name of employers. However, while the position is unclear, employers should no longer assume receiving an invoice in their name supports VAT recovery and we would urge caution with reclaiming any further VAT on pension scheme costs at this time. If the existing practice is subsequently confirmed by HMRC, this includes a 4-year look-back period in which VAT can then be reclaimed. Trustees and employers should seek professional tax advice on their own scheme position.

Transfer regulations consultation

The DWP is consulting on a series of amendments to the Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021 which are designed both to improve protections for pension savers and to improve how the regulations work in practice. We summarise the key changes proposed in this article.

Dashboards update

The statutory deadline for schemes to connect to the pensions dashboard is now a matter of months away. In this article Andy Prater summarises the key dashboards updates from the past few weeks.

DB developments

Innovative solutions for DB schemes: capital-backed investment arrangements

In the DB sector, the end-game solutions market continues to develop and innovate. We’re delighted to share this report on the cutting edge capital-backed investment arrangement implemented for one of our clients recently, only the second of its kind in the UK pensions market.

DWP to review use of flexible apportionment arrangements

Last year’s innovative use of a flexible apportionment arrangement in the Aberdeen / Stagecoach transaction saw Aberdeen acquire the Stagecoach DB pension scheme as an asset, with the intention of running the scheme on to generate surplus. The transaction has attracted the attention of the DWP, with Pensions Minister Torsten Bell announcing on 17 June that it will undertake a consultation exercise later in 2026 to canvas views on whether the FAA regime should be strengthened to take account of what was termed a “novel” use of the mechanism.

Can DB funds be used for DC benefits?

With surpluses in DB schemes a key area of focus in view of the current DWP consultation, Lauren Young considers when and how such monies can be used to support DC contributions.