In a speech in Oxfordshire, the Chancellor Rachel Reeves said she will relax rules around defined benefit pension schemes, where retirement incomes are guaranteed by the employer.
When unlocked, pension trustees and employers could then use this extra money to increase the productivity of their businesses – to boost wages and drive growth or unlock more money for pension scheme members.
Reeves announced plans to allow corporate pension surpluses that are worth more than £100bn to be released and reinvested.
Downing Street said earlier this week about 75 per cent of corporate defined benefit (DB) pensions, also known as final salary schemes, have a surplus worth £160bn.
In the widely anticipated speech, Reeves said: “We will be introducing new flexibilities for well-funded defined benefit pension schemes, generating even more investment into some of our fastest growing industries.”
He said: “But crucially, the Chancellor must clarify exactly how the surplus will be used.
“It’s all well and good talking about investment – but what does this mean for businesses and SMEs who form the lifeblood of our economy?”
Why is the Government looking to open up pension schemes?
Starmer said it will open up billions in investment. Approximately 75 per cent of schemes are currently in surplus, worth £160bn, but restrictions have meant that businesses have so far struggled to invest them.
Pension members should, hopefully, benefit as the surplus could be shared, boosting pots and reducing pensioner poverty.
square RENTING My rent has risen by £550 each month - I'm struggling to stay afloat
Read More
“Where schemes are fully funded and there are protections in place for members, we support efforts to help trustees and employers consider how to safely release surplus if it can improve member benefits or unlock investment in the wider economy.”
One of the key questions about the move is how safe the surplus money will be.
Sir Steve Webb, former pension minister, said: “Ideally the Government would go further and offer a way of guaranteeing member benefits, such as enhanced cover by the PPF, which would allow all surplus schemes to participate in this new option.”
“DB schemes’ funding positions have improved substantially in the past couple of years, in large part because of a dramatic rise in gilt yields – a rise that, ironically, was in part driven by Liz Truss’ disastrous mini-Budget.
“This is why it is vital any extra flexibilities are tightly controlled and ensure the interests of pension scheme members remain protected.”
Do experts think this is a good idea?
Several experts voiced their approval for the plans.
He added the extra funds release will probably be shared with members of the pension schemes, contributing to a reduction in pensioner poverty.
Sachin Patel, head of corporate DB endgame strategy at Hymans Roberson said: “We welcome the news that the Government’s focus is back on changes to increase the flexibility around DB surplus.
He said that any changes should not cut across the duties of DB pension scheme trustees and must ensure that existing member benefits continue to be safeguarded and secure.
Rachel Vahey, head of public policy at AJ Bell, said: “Maxwell and other historic pensions scandals still live long in the memory, and it’s imperative we don’t forget about the pension saver at the heart of this revolution. Trustees have an important role here.
“They need to be gatekeepers to the surplus, to make sure it is only handed to employers where the members’ financial future isn’t compromised. But they could find themselves caught in the crosshairs, facing pressure from employers on one side to release funds, whilst meeting their number one objective to protect pension scheme members on the other.”
Read More Details
Finally We wish PressBee provided you with enough information of ( How Rachel Reeves’ pension reforms will affect your savings )
Also on site :