Chancellor’s ‘£100bn opportunity’ for DB schemes to support the UK

The Chancellor of the Exchequer is due to make a major speech this Wednesday in which she is expected to announce a range of initiatives to promote economic growth. Weekend press reports suggested that her speech will indicate support for measures to make it easier for sponsors of Defined Benefit pension schemes to extract surplus funds, in light of the dramatic improvement in scheme funding in recent years. This follows on from a Government consultation in early 2024 on potential reforms to the DB funding regime, to which there has so far been no formal response.   

At present, surplus funds can generally only be extracted when a scheme winds up, and the exact rules about how this can be done and who benefits from the surplus vary from scheme to scheme. Last year the Government consulted on allowing a ‘statutory over-ride’ of scheme rules to make it easier for employers to extra surplus funds, including while the scheme is continuing to run on.  With many large schemes considering running on, rather than buying out all of their liabilities with an insurer at the earliest opportunity, this offers the potential of a release of funds to employers sooner, thereby boosting the economy, and also generating tax revenue for the government on extracted surpluses. The added incentives for employers may also facilitate DB schemes investing a little more productively, offering further potential to support the UK economy.

However, trustees will need to be confident that member benefits will not be put at risk. It is yet to be seen what accompanying measures will be implemented to protect scheme members, or what role trustees will take in permitting the release of any surplus.

LCP partner Steve Hodder, who has helped to lead industry wide discussions on these issues and has also discussed them with the Government said:

“It is very welcome that the Government is looking seriously at allowing greater flexibility for well-funded DB pension schemes.  These schemes collectively offer vast potential to further support not only their own members and their sponsors, but also the UK economy.

"The key to success will be to ensure comprehensive protection of member benefits to give trustees the required confidence.  One route which would ensure all well funded schemes could access these new freedoms would be a 100% underpin from the Pension Protection Fund, subject to certain conditions. But time is of the essence, and the Government needs to give a clear sign now to schemes that this is on the agenda, otherwise final decisions will be made and the opportunity will be missed".