The government has announced plans to consult on whether changes to rules around when defined benefit (DB) pension scheme surpluses can be repaid could incentivise investment in UK growth.

As part of his Autumn Statement reforms, Chancellor, Jeremy Hunt, has proposed consulting this winter on plans to encourage well-funded DB schemes to invest their surplus in assets with higher returns.

The consultation will also include new mechanisms on how to protect members amid the rule changes, with LCP saying it expected a 100 per cent Pension Protection Fund underpin for those who opt into the new regime to be included as part of the consultation.

This could help these schemes build up a larger surplus, sharing this with the sponsor, and make it easier for them to run on.

The government also announced that it would be reducing the authorised surplus payments charge from 35 per cent to 25 per cent from 6 April 2024.

LCP argued that, if trustees were assured that member benefits were fully protected, well-funded schemes would be able to take on an increased level of investment risk, generating larger surpluses to the benefit of existing DB members, the defined contribution generation, and the scheme sponsor.

“Today’s announcement represents a huge leap forward in plans to allow well-funded DB schemes to invest for growth,” commented LCP partner, Steve Webb.

“Provided that member benefits are protected, schemes would be able to build up surplus funds, benefiting existing members, the next generation of pension savers and the sponsoring employer.

“Rather than risk ‘wasting’ the potential of over £1 trillion of assets which have been painstakingly built up over decades, this new regime would be a win for members and sponsors alike. And the announcement of a lower rate of tax on extracted surpluses is a clear sign that the Treasury is serious about these plans.

“We look forward to seeing the consultation on the details of how this new regime will work and encourage all well-funded schemes to include the option of running on when deciding on their endgame strategy.”

Alongside these measures under ‘Enabling pension funds to invest in a diverse portfolio’, the government also said it would be engaging with industry on proposals to ensure all aspects of the pensions industry are supporting best outcomes for savers, including how to shift employer incentives away from low fees towards long-term pension investment performance.

Furthermore, it committed to two successful bidders in the Long-term Investment for Technology and Science (LIFTS) initiative, subject to final agreement, and confirmed its intention to establish a Growth Fund within the British Business Bank.

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