Millions of workers could see their pensions threatened under new Government plans to allow companies to tap into £160bn of defined benefit pension surpluses, as reported by The Telegraph.
The proposals, backed by Chancellor Rachel Reeves, would permit firms to draw down excess funds from pension schemes under looser safeguards. While this could unlock significant business investment, any funds taken would immediately face a 25% tax charge, potentially generating up to £40bn for the Treasury.
Pensions specialist Stephen Lowe, of the retirement firm Just Group, cautioned that the move appears driven more by a desire to boost tax revenue than to improve retirement outcomes. He warned that “extracting surplus and making riskier investments, before pensions have been guaranteed, could lead to less money in the scheme and therefore put retirements at risk”.
Under current rules, pension schemes can return surpluses, but tight regulations have made it uncommon. The Government’s new plan would ease those restrictions, with companies potentially using the funds to pay dividends, invest in operations, or contribute to national infrastructure projects.
The reforms come amid efforts to attract investment into British infrastructure and revive the struggling London stock market, which has seen several firms opt for listings in the US due to better valuations and liquidity.
Around 8.8 million people are members of defined benefit schemes, and consultants Hymans Robertson estimate that up to £160bn in surplus could be accessible under the new rules. For every £10bn drawn down, the Treasury would collect £2.5bn in tax – a timely windfall as Reeves looks to meet her fiscal targets. Lowe told The Telegraph:
“Most commentators have been fixated on how this surplus is going to be funnelled into building UK reservoirs and bridges, but they’ve missed a more immediate benefit the Chancellor is targeting – tax revenue.”
The Chancellor defended the proposals by reaffirming her focus on economic growth, stating she would fight “every day to tear down the biggest barriers to growth, taking on regulators, planning processes and opposition to this urgent mission”.
However, many in the industry remain sceptical. Nausicaa Delfas, chief executive of The Pensions Regulator, acknowledged that around 80% of defined benefit schemes are currently fully funded – their best position in recent memory – but stressed that “ensuring pension scheme members have the best chance of receiving their promised benefits” must remain the top priority.
She added that where protections for members are in place, she supports exploring options to safely release surplus funds.
Nonetheless, critics argue the reforms risk echoing past pension scandals. Some have drawn comparisons to the Robert Maxwell case, where poor oversight allowed £460m to be illegally siphoned from company pension schemes.
A recent survey by the Pension Insurance Corporation found that 60% of defined benefit scheme members believe the Government’s plans would put their pensions at risk.
Full details of the proposed reforms are expected in a Government report due this spring. The Treasury has been approached for comment.
