Working people and businesses are set to benefit from new rules that will give more flexibility over how occupational defined benefit pension schemes are managed, as the government continues to remove blockages that are inhibiting its growth agenda that will improve lives of working people across the UK. 

Hosting a meeting with leaders of Britain’s biggest businesses in the City of London today (Tuesday 28 January), the Prime Minister and the Chancellor will set out the details of changes and tell some of the country’s leading CEOs that Britain is back and open for business.

At the roundtable, the PM and Chancellor will outline how restrictions will be lifted on how well-funded, occupational defined benefit pension funds that are performing well will be able to invest their surplus funds. 

This follows action taken by the government last week to bring a renewed focus on growth from some of the UK’s biggest regulators, a shake-up to legal challenges on planning applications, and new “brownfield passports” to speed up housing in commuter hotspots.

Prime Minister, Keir 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.

Chancellor of the Exchequer, Rachel Reeves said:

I know this government and businesses are united on growth being the top priority for our economy, which is why I am fighting every day to tear down the biggest barriers to growth, taking on regulators, planning processes and opposition to this urgent mission.

The Prime Minister and Chancellor will tell CEOs from some of the UK’s most successful companies that that the government is seeking to create the best possible conditions for the private sector to thrive. They will promise to work in partnership with businesses, to deliver high-quality jobs across the country, and the economic growth that will fund the schools, hospitals and roads that we all rely on.

Pension trustees and the sponsoring employers could then use this money to increase the productivity of their businesses – to boost wages and drive growth or unlock more money for pension scheme members. 

High growth and more productive businesses boost the size of the economy which in turn will fund our vital public services.

This more efficient approach demonstrates that the government has been listening to business, and will give businesses more flexibility, allowing trapped surplus funds to be invested into the wider UK economy, or given to scheme members as additional benefits.

Where trustees agree to share a portion of scheme surplus with a sponsoring employer, the employer may choose to invest these funds in their core business, for example to purchase equipment or supplies, and/or provide additional benefits to members of the pension scheme.

Approximately 75% of schemes are currently in surplus, worth £160 billion, but restrictions have meant that businesses have struggled to invest them.

These reforms build on the Chancellor’s Mansion House reforms which will create pension megafunds as part of the biggest set of pension reforms in decades, unlocking billions of pounds of investment in exciting new businesses and infrastructure and local projects.     

Over £1.1 trillion is held by pension funds in the UK and defined contribution pension schemes are set to manage £800 billion worth of assets by the end of the decade. This Government is determined to encourage these pension funds to deliver investment and drive economic growth – which is the only way to make people better off.    

Jonathan Lipkin, Director of Policy, Strategy & Innovation at the Investment Association said:

Unlocking surplus capital from defined benefit schemes has the potential to both boost UK growth by opening up investment opportunities for companies and their stakeholders, as well as the possibility of higher pensions for scheme members. With around £1.1 trillion in assets, defined benefit schemes already make a significant contribution to the funding of the UK economy and public services. 

With the right guardrails in place, the government’s proposals could help channel more funding into the economy, by enabling schemes to invest more widely and take on greater risk, while allowing for members to receive an uplift to pension benefits.

Zoe Alexander, Director of Policy and Advocacy at the Pensions and Lifetime Saving Association, said: 

The PLSA backs surplus release, with the right protections in place to ensure member benefits are secure. Surpluses could be used to increase DB scheme benefits or could be redirected to fund contributions to sponsoring employers’ defined contribution workplace schemes.

Lowering the legislative threshold for allowing returns of surplus could potentially encourage trustees, in conjunction with their employers, to adopt a more ambitious mindset and take on slightly riskier investment strategies for their DB assets, including greater investment in UK assets.

Patrick Heath-Lay, Chief Executive Officer for The People’s Pension, said:

It is positive news to see the government is looking at the pension industry as a whole. This will help unlock more of the £2.9trillion that is held in UK pension savings, to benefit savers and the economy alike.

We look forward to other pension schemes following our plans and outlining how they will invest in private markets.

The roundtable discussion will focus on the government’s partnership approach to growth with business, including how regulation can better support the Growth Mission, and the role of business in achieving the UK’s ambitions in AI which the Prime Minister unveiled earlier this month. Every regulator has a role to play in the Growth Mission and the Chancellor is hosting a series of roundtables with the 17 regulators that the Prime Minister wrote to in December, to discuss their proposals to support growth in the coming year. 

The meeting with CEOs comes days after the Chancellor’s return from the World Economic Forum, where she pitched Britain’s investment credentials and let global business leaders know that the UK is open for business again. She championed early reforms to planning, pensions, and regulation that make it easier to do business in Britain and remove barriers investors from overseas face.

On Wednesday, the Chancellor will make a speech where she will set out plans to push through further planning reforms to get Britian building again, rip up regulatory barriers so we can encourage more investment into the UK and announcements to boost trade and investment.

The government will set out the details of the surplus policy in its response to the Options for Defined Benefits consultation, due this Spring.

Further information: 

• Currently DB scheme surplus can only be accessed where schemes passed a resolution by 2016, so not all schemes can access surplus even if trustees and sponsors both want to do so. 
• Legislative changes could enable all DB schemes to change their rules to permit surplus extraction where there is trustee-employer agreement. This allows trustees to assess the suite of options available in striking a deal with employers on how best scheme members can also benefit – linked to improving member outcomes. 
• Trustees have an overarching fiduciary duty to act in the best interests of their members. When considering surplus extraction, trustees must fund the scheme and invest its assets in a way that leads to members receiving their full benefits.