Pensions Update - August 2026

Welcome to our pensions newsletter, summarising key developments across higher education pension schemes and the wider pensions landscape, with a particular focus on the issues most likely to affect institutional finances, pension strategy and governance.

Key actions and deadlines

USS

USS valuation consultation enters critical phase

The USS 2026 valuation remains the most significant pensions issue facing the higher education sector this year. Following the publication of the provisional valuation results in July, employers are now considering their responses to UCEA ahead of the 11 September consultation deadline.

As a reminder, USS reported:

• A funding surplus of £16.9bn.
• A funding level of 127%.

• A future service cost of 16.4%, compared with the current overall contribution rate of 20.6%.

The sector debate has increasingly focussed on what "stability" should mean in practice. For some employers, stability means retaining the current contribution structure and using the surplus as a buffer against future volatility. Others argue that continuing to contribute above the future service cost may be difficult to justify given the scale of the existing surplus.

Mercer's recent discussions with institutions highlighted several key questions:

• Should contributions reduce towards the future service cost?
• Should part of the surplus be retained as a strategic buffer?
• Is there an opportunity to reduce investment risk while maintaining strong funding levels?

• Could some of the surplus be deployed to support future benefit improvements?

Under current indicative cost-sharing assumptions, employer contributions could reduce from 14.5% to approximately 11.8% of salary, representing a material saving for many universities. Equally, maintaining contributions at current levels would mean continuing to build surplus above the provisional cost of benefit accrual.

Institutions may wish to consider:

• Their preferred balance between affordability and long-term stability.
• The value of potential contribution savings.
• Workforce considerations if member contributions reduce.

• The message they wish UCEA to communicate on behalf of the sector.

Wider DB surplus debate

The USS consultation sits within a broader industry discussion around the use of defined benefit surpluses. Recent commentary from governance specialists has emphasised that strong funding positions present both opportunities and governance challenges, particularly where multiple stakeholders may have differing views on how surpluses should be utilised.

LGPS

Focus remains on funding strength and investment strategy

LGPC Bulletin 281 has also been published, providing updates on current regulatory and operational developments across the Scheme.

Many LGPS funds continue to report strong funding positions, resulting in growing discussion about how pension assets can best support long-term investment objectives while maintaining member security.

For institutions participating in LGPS, attention is increasingly shifting from deficit management to questions around future employer contribution levels, investment strategy and governance. While there are currently no proposals to alter member benefits, funding surpluses and investment reforms are likely to remain prominent policy themes over the coming years.

TPS

Consultation launched on member contribution changes

The Department for Education has launched a consultation on amendments to the Teachers' Pension Scheme (TPS) member contribution tiers from April 2027. The proposals would increase salary thresholds and reduce contribution rates across most bands while maintaining the required average member contribution yield.

Importantly, these proposals relate only to member contributions and do not affect the previously announced reduction in employer contributions from 28.68% to 17.68% from April 2027. The consultation closes on 30 October 2026.

The headline financial issue remains the substantial reduction in employer contribution rates from April 2027. For many post-92 institutions, that reduction is likely to have a significantly greater financial impact than any member contribution changes.

However, institutions should also begin considering:

• Payroll system updates that may be required.
• Future employee communications.

• Potential staff expectations arising from lower member contributions and lower employer costs.

NHSPS

Exit payment guidance published

NHS England has published updated guidance on processes for making exit payments within NHS organisations. While primarily aimed at NHS employers, the guidance may be relevant to universities employing clinical academics or other staff with NHS Pension Scheme membership, particularly where restructuring exercises or workforce changes are being considered.

SAUL

Financial position remains strong

SAUL has published an update on its financial position, reporting continued strength in scheme funding. The update mirrors broader trends across defined benefit provision, where funding positions have generally improved as a result of favourable market conditions and higher interest rates. Institutions participating in SAUL may therefore wish to monitor future discussions around funding strategy and contribution requirements. 

HMRC

Consultation on Normal Minimum Pension Age transitional provisions

HMRC has launched a consultation relating to the increase in the Normal Minimum Pension Age from 55 to 57 from April 2028. The consultation focuses on transitional protections and associated tax provisions. First Actuarial have prepared this briefing.

Defined benefit surplus payments

The Government has also published draft legislation that would permit authorised surplus payments to members from defined benefit schemes from April 2027, subject to various funding and governance conditions. The consultation closes on 7 September 2026.

Public service pensions remedy updates

HMRC has issued its latest Public Service Pensions Remedy Newsletter, together with updates to scheme administrator guidance relating to the McCloud remedy. One notable change is revised information regarding the secure transfer of files to HMRC.

HMRC has also updated its pensions contact guidance, setting out in more detail who can access support and the identification requirements for different categories of enquirer.

Pension scheme newsletters

HMRC has published Pension Schemes Newsletter 183, providing updates for pension scheme administrators and advisers on current developments across the pensions tax landscape.

UCEA

UCEA has published the latest edition of its pensions newsletter, covering developments in the Government's Pensions Roadmap, ongoing valuation activity across higher education pension schemes, and research into large defined contribution arrangements. Members can access the newsletter through the UCEA website.

General

Tribunal reinforces responsibility for pension decisions

A recent Upper Tribunal decision has reinforced the principle that trustees and pension scheme decision-makers cannot automatically rely on professional advisers to avoid regulatory penalties. The case concerned actions taken based on incorrect professional advice, with the Tribunal largely upholding an earlier decision that reliance on erroneous guidance did not remove responsibility for compliance failures. However, it did conclude that the level of penalties imposed should be reconsidered.

For institutions with trustee responsibilities, self-administered pension schemes, or internal pension governance committees, the judgment highlights the importance of:

• Maintaining clear records of decisions and the rationale behind them.
• Appropriately challenging and scrutinising adviser recommendations.
• Ensuring robust governance processes are in place when making significant pension decisions.
• Understanding where responsibility ultimately rests when regulatory obligations are involved.

Major pension investors explore UK growth fund

Several of the UK's largest pension investors, including Railpen, Nest and a number of LGPS investment pools, are exploring participation in a proposed investment vehicle focused on supporting high-growth UK businesses. The initiative forms part of the Government's wider efforts to encourage greater domestic investment from pension funds and improve access to long-term capital for UK companies.

The proposal is the latest example of policymakers seeking to harness pension fund scale to support economic growth, alongside ongoing discussions around LGPS pooling, Mansion House reforms and productive finance investment.

CIOT raises concerns over pension inheritance tax reforms

The Chartered Institute of Taxation has warned that proposed inheritance tax changes affecting pension assets could lead to additional administrative complexity, delays in estate administration and increased compliance burdens unless amendments are made.

Value for Money framework moves closer

The Pensions Regulator has published further guidance on the proposed Value for Money framework for defined contribution schemes. Although mandatory reporting is not expected until 2028, the framework continues to move steadily towards implementation.

BUFDG Events

We are pleased to be hosting a series of pensions webinars for our members throughout the year, featuring sector-specific content and practical resources tailored to higher education institutions.

We are currently finalising the 2026/27 programme with a range of expert organisations and will share further details as soon as they are confirmed. In the meantime, we are delighted to announce the first webinar in the series.

Click on the titles to register your place or catch-up.

Your Self-Administered DB Pension Scheme: An Untapped Asset?

17 September 2026 | 10:00-11:00 | Online

We're delighted to launch the first event in our 2026/27 pensions webinar programme with Law Debenture and The Education Pensions Club.

This session will explore how institutions can derive greater value from self-administered defined benefit pension schemes through effective governance and strategic decision-making. Topics will include:

• Cost and value opportunities within DB schemes
• Governance and trustee effectiveness
• Managing funding surpluses and emerging opportunities
• Reducing internal governance burdens

• Sector benchmarking and insights from a dedicated higher education survey

The session is aimed at institutions with their own self-administered DB pension schemes and will not cover USS, TPS, LGPS or SAUL arrangements.

We would also encourage institutions with self-administered schemes to complete the accompanying sector survey, which will help inform the discussion and benchmarking findings presented during the webinar.

External Events

Upcoming

Higher Education Webinar – Marsh, Dalriada and Burges Salmon

16 September 2026 | 15.30 to 16.30 | Online

University-backed pension schemes are facing an increasingly complex landscape. Join the higher education pensions specialists from Dalriada (professional trustees), Marsh – People and Investments (actuarial, investment and governance consultants), and Burges Salmon (legal advisers) for an interactive webinar, where we'll explore the key issues, share practical insights and discuss what they mean for universities.

Catch-up

First Actuarial: Pensions in Education – What's on your agenda this year-end?
Covers year-end accounting considerations, sector benchmarking, TPS contribution reductions, USS valuation outcomes and wider pension developments affecting higher education institutions.

First Actuarial Annual Conference

Videos of the following sessions are now available: Impact of AI on financial markets, Insights from Stagecoach “sponsor swap” deal, gender pension gap, DB funding code in practice, making DC work in retirement, DB surplus – how and when should members benefit, investing to reach your long-term target.

IFS: Increasing Pension Contributions – What Would Higher Employer Minimums Mean? - An interesting discussion exploring automatic enrolment reform, employer contribution trends and the potential implications of future policy changes.