The Department of Work and Pension has said record funding levels in the defined benefit (DB) sector will mean up to £160bn could be utilised to boost UK growth.
In a statement today the pensions minister Torsten Bell pointed out that three out of four DB schemes are now in surplus with deficit payments down by over £10bn a year.
The forthcoming Pensions Schemes Bill will contain measures to allow some of the surplus funds to be released by trustees and employers, to boost investment and benefit scheme members.
The reforms are part of the Government’s ‘Plan for Change’ by boosting economic growth and securing the financial future of millions of UK savers.
The DWP points out that in 2019, just 600 DB schemes were financed sufficiently, meaning businesses could meet the costs associated with their schemes without dipping into operational budgets – by 2024 that figure had tripled to over 1,800.
Because of this robust financial position, the additional payments businesses have had to pay to plug pension deficits has fallen from £16bn in 2010 to under £5bn in 2024 — delivering an immediate cashflow benefit to firms that the government hopes will support higher levels of investment and wages.
The funding position of schemes in deficit has improved significantly, from a collective deficit of £500bn in 2019 to a deficit of just £140bn in 2024.
Schemes running at a surplus have seen their collective surplus now rise to more than £160bn. Currently, many schemes cannot access their surplus – but the forthcoming Pension Schemes Bill will allow trustees and the sponsoring employers to safely release some surplus to invest back into their businesses and unlock more money for pension scheme members.
The upcoming changes will focus on member protection, and trustees will continue to be required to fulfil their duties towards scheme beneficiaries.
The Minister for Pensions, Torsten Bell says: “The record funding levels for DB schemes is excellent news for Britain’s employers and workers.
“Fast falling deficit payments offer employers a cashflow boost of over £10bn a year, that can support higher wages and investment.
“And growing scheme surpluses can also be used productively. Currently some trustees are held back from sharing the benefits of a surplus, but our plans will allow all schemes to safely do so, delivering greater investment across firms and benefits for savers.”
ABI head of long-term savings Hetty Ahern says: “Defined benefit (DB) pension schemes’ funding has improved enormously in the last few years, with the Pensions Regulator finding over half of schemes are now in surplus on a buyout basis.
“It is welcome that the government have committed to member protection being at the heart of these proposals. Before extracting surplus from their DB pension schemes, trustees and sponsoring employers will want sufficient comfort that their obligations to members have been met, and insurance remains the safest way for them to do so.”