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Chancellor Rachel Reeves is looking to free up billions of pounds from the UK's £1.2tn defined benefit pension system in her latest bid to kickstart growth.
The government is preparing to allow companies to access the surpluses of the scheme – which is estimated to be worth about 100 billion dollars – to encourage them to invest in riskier assets, according to people briefed on the chancellor's opinion.
“The devil is in the details but we tend to be biased,” said one government insider.
The Treasury declined to comment on the discussions – first reported by Sky News – but City sources said Varun Chandra, Sir Keir Starmer's chief business adviser, had discussed using the so-called surplus to boost the economy.
The change in focus for DB schemes comes as the chancellor prepares himself speech of growth on Wednesday. Pensions experts estimate that allowing companies to access the remainder of the scheme could unlock up to £100 billion in investment.
The government has previously focused its pension review on combining defined contribution (DC) and public sector pension assets. Review Pension adequacy – which the government had hoped would drive more investment in the UK – has been delayed indefinitely.
In an interview with the Financial Times in November, former pensions minister Emma Reynolds said she prioritized reforming the DC workplace system because “that's where the growth is”.
He noted most DB pension schemes were closed to new members and “inherently have a long maturity” as schemes move into less risky assets as they expire or sell their pension liabilities to the insurance company.
However, industry insiders say the dramatic improvement in DB pension funding conditions in recent years following a rise in government bond yields means many are now in a position to take more risk, if the rules enable companies and scheme members to benefit. it.
“The reason government announcements are about DC and Local Government Pension Scheme is because they don't really understand DB and think it is too big to touch. . . but the consequences of not touching it are very bad for the government and I think they understand it now,” said the chairman of the DB pension scheme.
David Lane, chief executive at TPT Retirement Solutions which manages DB and DC pensions, said allowing companies to access scheme surpluses “could be an effective way of moving pension assets into the UK economy after other consolidation initiatives have been announced . . . directly if the employer re-incorporates it into his business”.
Access to the scheme's surplus could slow the pace at which pension funds are offloading their pension liabilities to insurance companies, with around £50bn of assets being transferred in so-called bulk annuity transactions each year for the past two years, according to pensions consultancy WTW .
Stopping this trend could help support UK government bond and equity markets in the long term because insurance companies often sell gilts and invest in high-yield corporate bonds – many of them overseas – and their profit-making infrastructure.
Zoe Alexander, director of the Pension and Lifetime Savings Association trade group, said she supports the release of the surplus, with appropriate safeguards in place to ensure members' benefits are protected.
“Lowering the legislative threshold to allow residual returns could encourage trustees (along with their employers) to take a more optimistic view and take less risky investment options in their DB assets, including larger investments in UK assets,” he said.