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Chancellor Rachel Reeves wants to unlock the growth of 1.2 TN defined benefit pensions in her latest attempt to unlock 1.2 TN defined benefit pensions.
The government is preparing to allow companies to access scheme surpluses worth around £100bn to encourage them to invest in riskier assets, according to people with knowledge of the Chancellor’s thinking were informed.
“The devil is in the details, but we are positively inclined,” said a government insider.
The Treasury declined to comment on the discussions – first reported by Sky News – but City sources said Varun Chandra, Sir Keir Starrer’s top business adviser, had discussed the possibility of using so-called surpluses to grow the economy.
A shift in focus on DB schemes comes as the Chancellor prepares for them Growth speech on Wednesday. Pensions experts estimate that companies could unlock access to scheme surpluses for investments of up to £100bn.
The government had previously focused its pension review on consolidating defined contribution (DC) and local assets for the local authority. A review Pension adequacy – which the government had hoped would bring more investment into the UK – has been delayed indefinitely.
In an interview with the Financial Times in November, former pensions minister Emma Reynolds said she had prioritized DC jobs program reform because that was “where the growth is.”
She noted that the majority of DB corporate pension programs were closed to new members and “of course had a shorter time frame” because the programs move into less risky assets when winding down or selling their pension obligations to an insurance company.
But industry insiders said a radical improvement in the funding position of DB pension schemes in recent years, following a surge in government bond yields, meant many were able to take on more risk when rules allowed companies and members to take on more risks to benefit from which they were able to benefit.
“The reason the government’s announcements about DC and the local government pension system persisted is because they don’t really understand DB and feel it’s too big to touch. . . But the implications of not touching it are worse for the government and I think they realize it now,” said the chairman of a multibillion-pound DB pension scheme.
David Lane, chief executive officer at TPT Retirement Solutions, which manages DB and DC pensions, said allowing companies access to scheme surpluses has been announced. . . It’s direct when the employer reinvests that money into their business. “
Access to scheme surpluses could slow the pace at which pension funds have offloaded their pension liabilities to insurance companies. Around £50bn has been transferred in so-called bulk annuity transactions over the past two years.
The cessation of this trend could help support UK government bonds and stock markets in the longer term, as insurance companies typically sell gilts and invest in higher yielding corporate bonds – both overseas and in infrastructure – to make their profit.
Zoe Alexander, director of trade group Pensions and Lifetime Savings Association, said she supported the release of the excess disclosures with the right protections in place to ensure members’ benefits are safe.
“Lowering the legislative threshold for allowing surpluses could potentially encourage trustees (in collaboration with their employers) to adopt a more ambitious mindset and undertake slightly riskier investment strategies for their DB assets, including larger investments in UK assets,” she said .