Pension Reforms to Unlock £60bn for Investment
Chancellor Rachel Reeves is set to relax pension rules, unlocking an additional £60bn for investment as part of her economic growth strategy.
Relaxation of Gold-Plated Schemes
The Pensions Regulator has announced plans to significantly overhaul so-called gold-plated pension schemes, allowing up to 1,000 schemes to access surplus funds for the first time. Defined Benefit (DB) schemes, which typically have a closed membership, have accumulated large surpluses due to rising interest rates.
Surplus Accessibility
Reeves intends to grant "new flexibilities" to "well-funded" schemes, enabling them to release surplus funds "where it is safe to do so." Previously, surpluses were only accessible once they reached a level sufficient for an insurance company to assume pension payments.
Inclusion of Low Dependency Schemes
The new measures will also include "low dependency schemes" with low-risk investments. These schemes hold approximately £1.4 trillion in assets and are at minimal risk of bailout. Their inclusion could unlock an additional £60bn.
Incentivized Continuation of DB Schemes
The reforms aim to create incentives for DB schemes to continue operating rather than being sold to insurers. However, concerns remain regarding the protection of members and the allocation of surplus funds.
Economic Impact
The Treasury estimates that approximately 75% of DB schemes currently have surpluses. Relaxation of rules could lead to significant investment in the UK economy, contributing to growth.
Cautious Approach
Reeves has emphasized that growth will require significant effort and that any withdrawals from pension funds must be approved by trustees, sponsors, and members. The ultimate aim is to protect the interests of pension holders while fostering economic prosperity.