Pension industry backs Reeves’ £160bn investment drive
The pensions industry has said it is willing to back the Chancellor Rachel Reeves’ plans to unlock up to £160bn in corporate surpluses if retirees are given “appropriate protection” by the government.
Reeves and the Prime Minister Keir Starmer are set to meet with business leaders in Canada today to outline pension reforms aimed at driving economic growth.
Under the changes, trapped surplus funds in so-called final salary pension schemes will be freed up for investment, while trustees will be given more flexibility over the management of occupational defined benefit schemes.
Rising interest rates since 2022 have bolstered the funding position of the UK’s defined benefit pension schemes and pushed around 75 per cent of schemes into surplus, meaning the value of their assets outweigh their liabilities to members.
However, some £160bn has been locked up by current investment rules and prevented from flowing into businesses and the wider economy, the Treasury has said.
Starmer claimed in a statement the latest plans will “unlock billions of investment”.
The government’s proposals have won cautious approval from pension bosses who said the plans could provide a boost to business and employees “with the right protections in place”.
“Lowering the legislative threshold for allowing returns of surplus could encourage trustees, in conjunction with their employers, to adopt a more ambitious mindset and take on slightly riskier investment strategies, including greater investment in UK assets,” Zoe Alexander, director of policy and advocacy at the Pension Lifetime Savings Association, said.
Jonathan Lipkin, from the Investment Association, said: “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.”
The Square Mile meeting today will see Starmer and Reeves reiterate their “growth mission” to executives including Lloyds boss Charlie Nunn, Nationwide CEO Debbie Crosbie, Tesco Group CEO, Ken Murphy and BAE Systems boss Charles Woodburn.
The plans come as part of a wider move by Reeves to overhaul pension rules and unlock billions of pounds of investment for businesses and infrastructure projects.
In November, Reeves unveiled plans to merge council pension schemes into so-called megafunds in what she called the “biggest pension reform in decades”.
Over £1.1 trillion is held by pension funds in the UK and defined contribution pension schemes are set to manage £800bn worth of assets by the end of the decade, No10 said.
“This government and businesses are united on growth being the top priority for our economy… I am fighting every day to tear down the biggest barriers to growth, taking on regulators, planning processes and opposition to this urgent mission,” Reeves said in a statement.
It comes ahead of a major speech by Reeevs on Wednesday, in which she is expected to focus on further planning reform, deregulation and announcements on trade and investment.
The government will set out the details of the surplus policy in its response to the Options for Defined Benefits consultation, due this spring.