Ministers said working people and businesses will benefit from new rules that will give more flexibility over how occupational DB pension schemes are managed.
Under the plans, scheme trustees will need to agree to share scheme surplus, with an estimated 75% of schemes currently in surplus worth £160bn.
The Prime Minister and the Chancellor set out the details of changes and told some of the country’s leading CEOs that “Britain is back and open for business” at a meeting with business leaders in London today (28 January).
Keir Starmer and Rachel Reeves outlined how restrictions will be lifted, allowing well-funded, occupational DB pension funds to invest their surplus funds.
Ministers said pension trustees and the sponsoring employers could use this money to increase the productivity of their businesses – for example, to boost wages and drive growth or unlock more money for pension scheme members.
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Starmer said: “The number one mission of my Government is to secure growth, drive higher living standards for everyone, and get more money into people’s pockets.
“To achieve the change our country needs requires nothing short of rewiring the economy. It needs creative reform, the removal of hurdles, and unrelenting focus. Whether it’s how public services are run, regulation or pension rules, my Government will not accept the status quo. Today’s changes will unlock billions of investment, pushing forward in delivering my Plan for Change.”
More than £1.1trn is held by pension funds in the UK and defined contribution pension schemes are set to manage £800bn worth of assets by the end of the decade.
‘Trustees have an important role here’
But experts warned that scheme members must be protected under the new rules, and warned that the proposals encourage pension scheme trustees to take risks with other people’s money.
Rachel Vahey, head of public policy at AJ Bell, said: “Maxwell and other historic[al] pensions scandals still live long in the memory, and it’s imperative we don’t forget about the pension saver at the heart of this revolution.
“Trustees have an important role here. They need to be gatekeepers to the surplus, to make sure it is only handed to employers where the members’ financial future isn’t compromised. But they could find themselves caught in the crosshairs, facing pressure from employers on one side to release funds, whilst meeting their number one objective to protect pension scheme members on the other.
“There is no doubt a healthy surplus has built up in many defined benefit pension schemes, thanks partly to the rise in long-term gilt yields, which has led to a reduction in liability values. But there is no guarantee these clement financial conditions will continue, and if employers were simply allowed to access this newfound surplus as though it were a windfall, that would present a clear danger to the finances of the scheme.
“The Government risks playing fast and loose with people’s financial later lives. It’s imperative that protection is built into any changes to prevent any future Maxwell-style raids on people’s pensions.”
Sachin Patel, head of corporate DB endgame strategy at Hymans Roberson, said: “As always, the details will be key. To ensure surplus sharing has a meaningful impact, it will be important for current legislative restrictions to be lifted whilst introducing smart tax initiatives.
“These could include incentives for investing in UK assets or tax-favourable mechanisms for sharing surpluses with other employer-based defined contribution pension schemes. Crucially, any changes should not cut across the fiduciary duties of DB pension scheme trustees and must ensure that existing member benefits continue to be safeguarded and secure.”
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