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In a bold move to stimulate the UK economy, Chancellor Rachel Reeves is exploring plans to unlock approximately £100 billion from Britain’s £1.2 trillion defined benefit pension system. The government’s initiative aims to grant companies access to scheme surpluses, encouraging investment in higher-risk assets that could potentially drive economic growth.
Sources close to the Treasury reveal that Varun Chandra, Sir Keir Starmer’s primary business adviser, has engaged in discussions regarding the utilisation of pension surpluses to enhance economic performance. This strategic shift towards defined benefit (DB) schemes comes as the Chancellor prepares to deliver her growth speech on Wednesday.
The pension industry’s landscape has undergone significant transformation recently, with improved funding positions following rises in government bond yields. This enhancement has positioned many DB pension schemes to potentially adopt more aggressive investment strategies, provided regulatory frameworks permit both companies and scheme members to benefit.
TPT Retirement Solutions’ Chief Executive Officer, David Lane, supports the initiative, suggesting that allowing companies to access scheme surpluses would provide a more direct route for channelling pension assets into the UK economy compared to previously announced consolidation measures.
The proposed changes could significantly impact the current trend of pension funds transferring their obligations to insurance companies, which has seen approximately £50 billion in assets moved through bulk annuity transactions annually over the past two years. A slowdown in this pattern could benefit UK government bond and equity markets, as insurers typically favour overseas corporate bonds and infrastructure investments.
The Pensions and Lifetime Savings Association has expressed support for surplus release, emphasising the importance of maintaining appropriate safeguards to protect member benefits. Their director, Zoe Alexander, suggests this could encourage trustees and employers to adopt more ambitious investment strategies, potentially increasing investment in UK assets.
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