HL UK Pensions Law Digest 22 January 2026

Welcome to our latest update, in which we cover: 

Pension Schemes Bill: release of surplus

• Comments from the Minister of State on the new power to release surplus;

Pensions Commission and further lifetime allowance regulations

• Parliamentary written answers from the Pensions Minister shed some light on timescales;

Pensions Administration Standards Association (PASA): digital transformation

• Part 2 of PASA’s guidance on effective digital transformation;

Prudential Regulation Authority (PRA): insurance supervision

• The PRA’s annual “Dear CEO” letter on its priorities for 2026;

Family leave: new rights under the Employment Rights Act 2025

• Various enhancements to family leave provision come into force on 6 April 2026.

Pension Schemes Bill: release of surplus

The Pension Schemes Bill is being considered by Committee in the House of Lords. The debates earlier this week focussed on the provisions on release of surplus. Points of interest made by Baroness Sherlock, Minister of State in the DWP, include the following.

• The amendments made by the Bill to the current legislation on refunds of surplus (section 37 Pensions Act 1995) are intended to put it beyond doubt that trustees are not subject to any additional tests when deciding to release surplus, beyond their “existing clear duties of acting in the interests of scheme beneficiaries”.
• Trustees will be expected to take appropriate professional advice when evaluating a potential release of surplus, which should include actuarial, legal and covenant advice.
• Regulations will set out the funding threshold for surplus release. The Minister repeated that the government is minded to permit surplus release only where a scheme is fully funded on the low dependency basis.
• Trustees will be required to notify members before surplus is released. Details of the notification requirement will be included in the regulations, to allow the government to consult and take industry feedback into account, for example over whether members should be notified separately of each surplus payment or whether notification of a planned schedule of payments would be sufficient.
• Trustees will be required to notify the Pensions Regulator (TPR) when they exercise the power to pay surplus. The regulations are expected to require trustees to explain how, if at all, members have benefited, in order to enable TPR to monitor how the new powers are being used.
• The regulations may be amended in future to add further conditions, for example if new circumstances arise from unforeseen market conditions.
• Following publication of the regulations, TPR will issue guidance on surplus sharing, setting out matters for trustees to consider around surplus release, as well as ways in which members may benefit.

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Answers from the Pensions Minister: Pensions Commission and LTA regulations

In response to Parliamentary written questions, the Pensions Minister (Torsten Bell), has responded that:

• On the Pensions Commission, the Commission is expected to publish its final report in the first half of 2027. (The Pension Commission was tasked in July 2025 with considering the long-term future of the UK pension system. Its terms of reference can be found here.)
• On the abolition of the lifetime allowance (LTA), further regulations will be made in Spring 2026 and will include updates on scheme-specific lump sums for members with enhanced protection. Most of the new regulations are expected to have retrospective effect from 6 April 2024, when the LTA was abolished.

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PASA: Digital transformation guidance

The Pensions Administration Standards Association (PASA) has issued Part 2 of its three-part series on delivering effective digital transformation. Part 2 focusses on planning a scheme’s digital transformation journey.

The guidance sets out a planning framework known as “BRIDGE”, comprising the following steps:

• Baseline assessment: including a comprehensive audit of current digital capability and identification of areas for improvement;
• Risk appetite and governance: including determination of risk tolerance for different risk categories (financial, operational, cyber, compliance and reputational) and maintenance of a risk register;
• Intention and vision: establishing a vision for transformation (purpose, scope and intended outcomes) and communicating this consistently;
• Desired outcomes: including identifying measurable goals and tracking progress against defined outcomes;
• Gains: identifying and communicating gains, while prioritising benefits for savers such as self-service, responsiveness and improved access; and
• Essential capabilities: identifying capabilities needed for transformation and developing a roadmap setting out short, medium and long-term priorities.

PASA intends to publish Part 3 of the series in February 2026.

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Insurance supervision: priorities for 2026

The Prudential Regulation Authority (PRA) has published its annual “Dear CEO” letter, outlining the priorities for its supervision of the UK insurance sector in 2026.

In relation to long-term insurance, points to note include the following.

• The PRA continues to pay particular attention to the bulk purchase annuity (BPA) market, which remains very competitive with increased demand for pension buy-out. The PRA is concerned that competitive pressures create incentives for insurers to weaken pricing discipline or risk management standards.
• The PRA expects insurers to ensure that their internal risk management frameworks and controls are sufficiently robust. In 2026 the PRA intends to revisit how insurers have responded to its “Dear CEO” letter of July 2025 concerning solvency-triggered termination rights in BPA transactions.
• Use of funded reinsurance (FundedRe) is continuing to grow. Since September 2025, the PRA has engaged with insurers in a series of roundtables, which have confirmed the need for policy action. The PRA expects to provide a further update in Q2 of 2026.

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Family leave: Employment Rights Act provisions in force

Regulations have been made which will bring various provisions under the Employment Rights Act 2025 into force on 6 April 2026. Of particular relevance to pensions are enhanced rights to some forms of family leave.

We recommend that employers and trustees check whether the family leave provisions in their pension documents will need updating.

Paternity and parental leave to become day-one rights

• Paternity and parental leave will become day-one rights, with the removal of the requirement for a qualifying period of employment.
• In addition, an individual will be able to take paternity leave after a period of shared parental leave (currently, someone who has taken shared parental leave may not take paternity leave at a later date).
• The enhanced rights will apply where a child is expected to be born (or is placed for adoption) on or after 6 April 2026.
• There is, however, no change to the position on pay. An employee will still need 26 weeks’ service to qualify for statutory paternity pay. Parental leave will remain unpaid.

Paternity leave for bereaved partners

• Draft regulations, expected in force on 6 April 2026, will introduce a new form of statutory leave: “bereaved partner’s paternity leave”. Where a child’s mother or primary caregiver dies within 52 weeks of the child’s birth or placement for adoption, the child’s father or the partner of the primary caregiver may take unpaid paternity leave for up to the remainder of the 52 week period.

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Authored by Jill Clucas.