Global Mobility & Employment

What has changed since Budget 2027?  

The Finance (No 2) Bill 2026 proposes a change to how the increased exemption and standard capital superannuation benefit (SCSB) are calculated for certain termination payments. Under the existing legislation, the value of a potential tax-free lump sum from an occupational pension scheme reduces these reliefs. 

The proposed amendment extends this requirement to a wider range of pension arrangements, including Personal Retirement Savings Accounts (PRSAs), certain overseas pension arrangements, Retirement Annuity Contracts (RACs) and My Future Fund (auto-enrolment). Where applicable, the present value of a potential future tax-free lump sum from these arrangements would need to be considered when calculating the tax relief available on the termination payment. 

The aim of the proposed amendment is to align the position under the wider range of pension products available today. However, the change was not previously flagged so it is difficult to see how employers will be able to deal with its implications. For example, how is a net present value calculation to be obtained from My Future Fund or an overseas administrator? 

As announced in Budget 2027, the Bill also proposes greater flexibility under employers’ Enhanced Reporting Requirements (ERR) from 1 January 2027. Employers can continue reporting in real time or use a monthly reporting option. The Bill confirms that the revised reporting timetable depends on updated Regulations and does not specify the details. 

Who is affected, and when?  

The proposed changes are relevant to all employers calculating relief on termination payments where an employee has a pension arrangement that provides a potential future tax-free lump sum.  

Employers making payments or providing benefits within the scope of ERR may also be affected by the reporting change.  

Both proposals are intended to apply from 1 January 2027.

What does this mean for businesses?  

Employers will need information about the value of an employee’s tax-free pension lump sum before finalising tax relief calculations on a termination payment. Obtaining information about private pension arrangements that the employer does not administer will be particularly challenging. This will require coordination with the employee and, where appropriate, their pension provider. A clear, timely process for obtaining the relevant lump sum value will be important. 

For employees in the auto-enrolment scheme, employers will need information from My Future Fund and a practical route for obtaining this information needs to be confirmed. 

Payroll and finance teams should also prepare to review their ERR processes once the revised reporting rules and regulations are finalised. The proposed flexibility may ease administration, but the available options and deadlines should be confirmed before processes change. 

What should businesses do now?  

Employers making termination payments should review how they identify employees’ pension arrangements and obtain the information needed to calculate any relevant capital sum.  Employers should also monitor the updated regulations for ERR before changing their reporting timetable.

Our view  

Employers have limited visibility of employees’ private pension arrangements. Requiring employers to obtain details of relevant capital sums from employees’ private pension arrangements could make termination payment calculations difficult to administer and is likely to lead to delays in finalising calculations in what can already be a sensitive time for departing employees. For employees who are in the auto-enrolment scheme, guidance on how employers can obtain the relevant information from My Future Fund would be helpful. It is hoped that the Bill will be amended to include a Ministerial Commencement Order to allow the pension industry to prepare for this change.  

The amendment to ERR requirements is welcome as it will offer flexibility to employers. The requirement to report these non-taxable expenses on or before payment was never practical. A review of the regulations, when available, will be required to consider the practical implementations of this change.