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Chancellor Rachel Reeves is looking to free billions of pounds from the UK's £1.2 trillion defined benefit pension system in her latest attempt to kick-start growth.
The government is preparing to allow companies access to the scheme's surpluses – worth an estimated £100bn – to encourage them to invest in riskier assets, according to people familiar with the Chancellor's thinking.
“The devil is in the details, but we are leaning toward the positive,” said one government insider.
The Treasury declined to comment on the discussions – which were first reported by Sky News – but sources in the City said Varun Chandra, Sir Keir Starmer's chief business adviser, discussed the possibility of using the so-called surplus to boost the economy.
The shift in focus on database schemas comes as the Chancellor prepares for them Growth discourse Wednesday. Pensions experts estimate that allowing companies to access scheme surpluses could unlock up to £100bn for investment.
The government had previously focused its pension review on consolidating defined contributions and local authority pension assets. review The cut in pension adequacy – which the government had hoped would stimulate more investment into the UK – has been postponed indefinitely.
In an interview with the Financial Times in November, former pensions minister Emma Reynolds said she prioritized reforming the capital's workplace schemes because that is “where the growth is”.
She noted that the majority of corporate pension schemes were closed to new members and “naturally had a less long timeframe” as schemes moved into less risky assets as they scaled back or sold their pension liabilities to an insurer.
However, industry insiders said a radical improvement in the funding position of DB pension schemes in recent years following a rise in government bond yields means many are now in a position to take on more risk, if the rules enable companies and scheme members to benefit from it. .
“The reason the government's announcements were about the capital and the local government pension scheme is because they didn't really understand DB and thought it was too big to be touched… But the implications of not touching it are worse for the government and I think “They realize that now.”
David Lane, chief executive of TPT Retirement Solutions, which manages DB and DC pensions, said allowing companies to access scheme surpluses “is likely to be a more effective way of channeling pension assets into the UK economy than some of the consolidation initiatives that have been announced”. “It's straightforward if the business owner reinvests that money into his business.”
Access to scheme surpluses could slow the pace at which pension funds offload their pension liabilities to insurers, with around £50bn of assets transferred in so-called bundled annuity transactions in each of the past two years, according to pensions consultancy WTW.
Halting the trend could help support UK government bond and equity markets in the long term because insurers typically sell bonds and invest in high-yield corporate bonds – many of them offshore – as well as infrastructure for their profits.
Zoe Alexander, trade group director of the Lifetime Pensions and Savings Association, said she supports releasing the surplus, with appropriate safeguards in place to ensure members' benefits are secure.
“Lowering the legislative threshold to allow surplus returns could encourage trustees (in conjunction with employers) to adopt a more ambitious mindset and take slightly riskier investment strategies for their bank assets, including investing more in UK assets,” she said.
