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In a significant move to boost the British economy, Prime Minister Sir Keir Starmer is set to announce plans enabling businesses to access substantial surpluses held in corporate defined-benefit pension schemes. The initiative aims to unlock a portion of the £160 billion currently held in surplus funds, marking a strategic shift in pension fund management.
The government’s analysis reveals approximately 3,750 corporate defined-benefit pension schemes are operating with surpluses, collectively holding £160 billion in excess assets beyond their member payment obligations. Under current regulations, less than £70 billion is eligible for company retrieval, highlighting the significant potential for economic stimulation through policy reform.
Morten Nilsson, chief executive of Brightwell, which oversees the BT pension scheme, emphasised the transformative nature of this reform, suggesting it could revolutionise how employers view their defined-benefit pension schemes. The proposed changes aim to shift perception from liability management to viewing schemes as valuable long-term assets.
The reform builds upon groundwork laid by former Conservative chancellor Jeremy Hunt in his 2023 Mansion House speech. The Labour government’s implementation would require new legislation to permit surplus extraction, contingent upon agreement between employers and pension scheme trustees.
Recent years have witnessed dramatic improvements in pension scheme funding levels, primarily due to higher government bond yields increasing expected asset returns. This development has effectively reduced the current accounting value of future liabilities, creating substantial surpluses across the sector.
While some industry experts express scepticism about widespread adoption, citing the existing 25 per cent tax on extracted surpluses as a potential deterrent, the government remains confident these reforms will catalyse significant economic growth. The initiative represents part of Labour’s broader strategy to rewire the British economy and stimulate investment.
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