The UK government is proposing to relax restrictions on how certain pension schemes are managed, aiming to unlock funds for broader economic investment. The Treasury has revealed that defined benefit pension schemes currently hold a total surplus of £160 billion, but existing regulations limit how much of this surplus can be invested in the economy.
Prime Minister Sir Keir Starmer, in a recent meeting with business leaders including executives from Tesco, BT, and Unilever, emphasized the government’s “growth mission” as the core of its economic strategy. The focus on boosting growth is in response to disappointing economic performance, with official data showing stagnant growth for much of 2024.
Starmer told company bosses that growth and wealth creation would be central to future policy decisions, though he acknowledged the need to balance this with climate commitments. His remarks followed a similar statement by Chancellor Rachel Reeves, who stressed the importance of “going further and faster” to stimulate economic expansion.
The government’s proposed pension reforms aim to release billions of pounds currently locked in surplus within defined benefit pension schemes for use in the wider economy or to support pension funds. Defined benefit schemes, which are linked to an employee’s salary and years of service, have long been seen as secure, with many pension funds now holding more money than necessary to meet their obligations. However, a few years ago, many of these schemes were in deficit due to lower interest rates, leading some companies to reduce pension offerings.
The consultation on pension reform follows a similar effort launched by the previous Conservative government. While some experts express caution over the risks of redeploying surplus funds, The Pensions Regulator (TPR) has voiced support for the government’s plans. TPR CEO Nausicaa Delfas said that where schemes are fully funded and protections are in place, the release of surplus funds could benefit both pension members and the wider economy.
Despite these reforms, some experts remain skeptical. Independent pension consultant John Ralfe questioned whether companies would be eager to release pension surpluses, noting that many businesses prefer to offload pension liabilities to insurance companies. He also pointed out that any changes would require agreement from pension trustees, making the process lengthy and uncertain.
Liberal Democrat Treasury spokesperson Daisy Cooper called for guarantees that pensioners’ funds would be protected, stressing the need for transparency regarding how the unlocked funds would be used.
The proposed pension changes are part of the government’s broader economic strategy, which also includes creating pension “megafunds” by merging smaller schemes and promoting investment in UK infrastructure. While the plan aims to bolster growth, its success will depend on the willingness of companies to invest surpluses and the ability of trustees to ensure the security of pension funds.
