Ryan FowlerThe UK government has unveiled new rules to provide greater flexibility in managing occupational defined benefit pension schemes, allowing surplus funds to be reinvested in the economy or used to enhance member benefits. The reforms, announced during a meeting with leading business executives in London on 28th January 2025, aim to fuel economic growth and improve living standards.
Prime Minister Keir Starmer emphasised the importance of driving growth as a cornerstone of the government’s agenda, stating: “The number one mission of my government is to secure growth, drive higher living standards for everyone, and get more money into people’s pockets. To achieve the change our country needs requires nothing short of rewiring the economy.”
The changes will lift restrictions on surplus funds in well-funded defined benefit pension schemes, enabling trustees and employers to reinvest in businesses or provide additional benefits to scheme members. Approximately 75% of schemes are currently in surplus, amounting to £160bn, but existing rules have limited how this capital could be utilised.
Chancellor of the Exchequer Rachel Reeves reinforced the government’s commitment to creating a growth-friendly environment, stating: “I know this government and businesses are united on growth being the top priority for our economy, which is why I am fighting every day to tear down the biggest barriers to growth, taking on regulators, planning processes and opposition to this urgent mission.”
The government’s plans include legislative changes to allow all defined benefit schemes to access surplus funds, provided there is agreement between trustees and employers. Trustees will continue to have a fiduciary duty to act in the best interests of scheme members.
Jonathan Lipkin, director of policy at the Investment Association, welcomed the reforms, saying: “Unlocking surplus capital from defined benefit schemes has the potential to both boost UK growth by opening up investment opportunities for companies and their stakeholders, as well as the possibility of higher pensions for scheme members.”
Zoe Alexander, director of policy and advocacy at the Pensions and Lifetime Savings Association, supported the proposals, noting: “Surpluses could be used to increase DB scheme benefits or could be redirected to fund contributions to sponsoring employers’ defined contribution workplace schemes.”
The reforms build on the Chancellor’s Mansion House proposals, which aim to unlock billions in pension investments for UK infrastructure and business. With over £1.1tn held in UK pension funds, the government sees these assets as critical to driving economic growth.
The meeting with CEOs also addressed regulatory changes, planning reforms, and the UK’s ambitions in artificial intelligence. The Prime Minister and Chancellor pledged to work closely with businesses to ensure a thriving private sector that creates high-quality jobs and supports public services.
Further details on the pension surplus policy will be outlined in the government’s response to the Options for Defined Benefits consultation, expected this spring.
