Pension reforms to encourage funds to increase investment

The Government has announced reforms to occupational defined benefit pension schemes that are managed well that will enable funds to increase their investment in the wider economy.

Proposals will see restrictions lifted on well-funded, occupational defined benefit pension funds that are performing that will allow them to invest their surplus funds. Pension trustees and the sponsoring employers could use this money to increase the productivity of their businesses, or provide additional benefits to members of the pension scheme. Approximately 75% of schemes are currently in surplus, worth £160 billion.

Prime Minister, Sir 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.“

Reforms build on the Chancellor’s previously announced plans to create pension megafunds as part of the biggest set of pension reforms in decades. The establishment of larger funds hopes to unlock billions of pounds of investment in new businesses, 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.

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.“