In her latest bid to use pension capital to boost economic growth chancellor Rachel Reeves has announced plans to unlock surplus finance from a number of private sector pension schemes.
Reeves is relaxing rules around how defined-benefit schemes are managed, given they have been boosted by higher interest rates in recent years giving them big surpluses, which they are now being encouraged to channel back into their business.
The treasury estimates that about three quarters of all schemes are in surplus, collectively worth £160bn. A decent amount if it was to be put to work in the wider economy.
Zoe Alexander, director of policy and advocacy at the Pensions and Lifetime Saving Association, welcomed the move by the chancellor.
“The PLSA backs surplus release, with the right protections in place to ensure member benefits are secure,” she said. “Surpluses could be used to increase DB scheme benefits or could be redirected to fund contributions to sponsoring employers’ defined contribution workplace schemes.”
Calum Cooper, head of pensions policy at Hymans Robertson, also welcomed the news. “It’s time to reconnect pensions with our economy and re-kindle our spirit of enterprise and entrepreneurial growth,” he said. “The role pensions can play in this is phenomenal, and government has fired the starting gun.”
And Jonathan Lipkin, director of policy, strategy and innovation at the Investment Association, added: “Unlocking surplus capital from defined benefit schemes has the potential to boost UK growth by opening up investment opportunities for companies and their stakeholders, as well as the possibility of higher pensions for scheme members.”
Steve Webb at LCP also said the move was “a very welcome development”, but he said the government could go further and “offer a way of guaranteeing member benefits, such as enhanced cover by the Pension Protection Fund, which would allow all surplus schemes to participate in this new option”.
“We need something bigger and bolder to maximise the potential of these reforms,” Webb added.
Although for the new rules to apply there needs to be an agreement between trustee and sponsor on how the surplus funds could be put to work. These reforms can be said to build on, in a small way, the chancellor’s Mansion House reforms, which are looking at creating pension megafunds.
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