Hopes for a multi-billion pound pensions windfall to stimulate growth and increase pensioners’ incomes have been significantly dashed. Official statistics found in Department for Work and Pensions (DWP) documents reveal that only a minuscule portion of the proposed £160 billion surplus held in private workplace pensions may actually be released.
Rachel Reeves, had based part of her economic strategy on reforms allowing companies to access ‘trapped’ surpluses in traditional final salary pension schemes. The idea was that this money could be used to invest in businesses or enhance the pensions paid to scheme members.
However, DWP figures suggest these reforms will only liberate around £8.4 billion over the next decade – equating to just £957 million annually. In some years, the figure could drop to as low as £153 million. This is a stark contrast to the whopping £160 billion that Reeves and Sir Keir Starmer claimed in January was lying dormant in pension funds and could – potentially – be redirected into the economy or used to bolster workers’ retirement pots.
John Ralfe, a pensions expert writing for Pension Insurance Corporation, has cast doubt on such aspirations. He cautioned: “Forget about £160 billion of pension surpluses just waiting to be paid out ‘to drive growth and boost working people’s pension pots’. The DWP figures estimate just a fraction of this, mainly because most companies want a full buyout with an insurance company.”
The Department for Work and Pensions (DWP) has shared some stark numbers alongside the newly ushered in Pension Schemes Bill, set to promise ‘better outcomes’ for both companies and savers according to government claims.
A DWP impact assessment report unveils that an estimated £8.4 billion in surplus withdrawals is expected to be evenly divided – £4.2 billion earmarked for employers and the remainder boosting pension payouts.
However, there’s a hint of scepticism from experts about whether firms will channel these funds into growth investments or increased pensions. Indeed, Schroders and Aberdeen, significant employers already petitioning for access to surpluses, have disclosed no plans to redirect this capital into further investments or augmenting pensions.
It seems many firms may prefer deploying any additional cash to settle pension liabilities with external insurers, thus shaking off persistent obligations. This tactic could stem from apprehensions over potential market instability ahead. Concurrently, it’s thought that trustees, in charge of safeguarding members’ interests, may oppose excessive drainage of scheme resources.
Earlier, Downing Street pertinently noted in January: “Approximately 75% of [defined benefit pension] schemes are currently in surplus, worth £160 billion, but restrictions have meant that businesses have struggled to invest them.”
Defined benefit pension schemes, which are now predominantly closed to new workers, encompass approximately nine million individuals and boast £1.2 trillion in assets. In contrast, the majority of private sector employees are currently enrolled in defined contribution schemes, which tend to be less generous.
A government spokesperson has firmly maintained that the proposed reforms will yield positive outcomes, stating: “Our proposals will unlock funds to boost the economy, remove barriers to growth and ensure working people and businesses are able to benefit from the opportunity these assets bring.”
