U.K. businesses will be able to tap billions of pounds currently trapped in defined benefit funds under proposed reforms to access to surpluses.
Prime Minister Keir Starmer and Chancellor of the Exchequer Rachel Reeves will meet with business leaders in London on Jan. 28 to outline the proposals.
The government’s plan is to lift restrictions on how well-funded, occupational DB funds that are performing well can access their surplus funds — under an agreement between plan trustees and the sponsoring employer — for investment into the wider U.K. economy or to offer additional benefits to participants, a news release said.
U.K. occupational DB funds had an aggregate £226.2 billion ($284.2 billion) surplus as of Dec. 31 according to the Pension Protection Fund’s 7800 index, with 74% of the index’s 4,969 plans in surplus. Under current rules, a pension fund must have passed a resolution before 2016 in order to access a surplus.
The plans form part of ongoing reforms to the U.K. retirement system, in efforts to unlock billions of pounds of investment from the country’s £1.1 trillion in pension fund and retirement plan assets.
The move was welcomed by the U.K. retirement industry, but also met with some caution.
"The government’s commitment to freeing up access to DB surpluses is a very welcome development and offers the potential to benefit employers, pension plan members and the wider economy,” said Steve Webb, partner at Lane Clark & Peacock and former pensions minister. “Yet ideally the government would go further and offer a way of guaranteeing member benefits, such as enhanced cover by the Pension Protection Fund, which would allow all surplus plans to participate in this new option.”
The reform “could fundamentally change the way some employers view their DB pension schemes, turning them into valuable assets to nurture,” said Morten Nilsson, CEO of Brightwell, in a news release. “Industry wide, we could see increasing numbers of employers opting to run-on their DB pension schemes for the long term. Having mutual agreement on any surplus release between trustee and employer is key, enabling them to work together to deliver good outcomes. Done carefully, we believe these changes will benefit employers and members and also support the UK economy,” he said.
