Fear over Labour plans to allow firms to extract cash from pension schemes
The vast majority of pension scheme members are “afraid” of government plans that would allow firms to take cash from defined benefit (DB) schemes for investment.
Prime Minister Keir Starmer and Chancellor Rachel Reeves signalled earlier this year that “trapped surplus funds” in DB pension schemes would be unleashed for firms to invest.
But a poll by the Pensions Insurance Corporation (PIC) suggests that the government lacks the support of over 55-year-olds who are signed up to DB schemes.
Seven in ten respondents said they opposed what the PIC has labelled as “extraction” while 94 per cent of people said it was important that politicians did not tamper with pension pots.
The government has made pension reforms central to their plans for growing the UK economy.
In a speech at Mansion House last year, Chancellor Reeves said she wanted to free up pension funds to invest in UK infrastructure and business.
“For too long, pensions capital has not been used to support the development of British start-ups, scale-ups or to meet our infrastructure needs,” she said.
“I have long been of the view that this hurts our economy because our highest-potential businesses cannot expand and savers are not seeing the returns on their investment which they deserve.”
In late January, it made DB pension schemes’ total surplus of some £160bn its next target for boosting investment.
But PIC chief executive Tracy Blackwell warned that firms should not be given free rein over the funds as pots risk being undermined.
“It took a long time to build up a legal regime for DB pensions that puts members first, after the scandals of the 1980s and 1990s,” she said.
“Members are clearly concerned at the prospect of these vital protections being watered down and I would advise them to write to their MP about these proposals.”
She also claimed that the views of the elderly and vulnerable should be “properly considered” in any government decision-making.
It pointed to a government consultation from February 2024 as evidence pensioners could be at risk if changes are authorised.
“Any extraction of surplus will reduce security for members,” the report said.
It also suggested that protection cannot be guaranteed for pension scheme members in a worst case scenario.
“In establishing a new basis to permit surplus extraction, we need to ensure there remains a very high probability that member benefits will be paid in full.”
The government said members’ protection will be a key focus if any reforms are introduced.
“There are billions of pounds in surplus funding currently sitting in private sector Defined Benefit (DB) pension schemes,” a spokesperson said.
“Our proposals will unlock funds to boost the economy, remove barriers to growth and ensure working people and businesses are able to benefit from the opportunity these assets bring.”