The government has announced plans to lift restrictions on how well-funded occupational defined benefit (DB) pension schemes are able to invest their surplus funds, in order to unlock "billions" of pounds to drive growth and boost pension pots.

The government will set out the details of the surplus policy in its response to last year's consultation on options for DB pensions, which is expected this spring.

Whilst around 75 per cent of DB schemes are currently in surplus, worth £160bn, the government acknowledged that restrictions have meant that businesses have struggled to invest them.

Given this, HM Treasury suggested that both working people and businesses would benefit from new rules giving more flexibility over how DB pension schemes are managed, as the government works to remove blockages that are inhibiting its growth agenda.

It also highlighted the decision to push ahead with changes to DB surplus rules as demonstration that it has been listening to business, allowing trapped surplus funds to be invested into the wider UK economy, or given to scheme members as additional benefits.

Indeed, HM Treasury explained that, where trustees agree to share a portion of scheme surplus with a sponsoring employer, the employer may choose to invest these funds in their core business, for example to purchase equipment or supplies, and/or provide additional benefits to members of the pension scheme.

The Prime Minister, Keir Starmer, and Chancellor, Rachel Reeves, are expected to unveil the plans at a meeting with leaders of Britain’s biggest businesses in the City of London today (28 January).

At the roundtable, the PM and Chancellor are set to tell some of the country’s leading CEOs that "Britain is back and open for business" and that the government is seeking to create the best possible conditions for the private sector to thrive.

As part of this, the government will promise to work in partnership with businesses, to deliver high-quality jobs across the country, and the economic growth that will fund the schools, hospitals and roads that we all rely on.

HM Treasury suggested that pension trustees and the sponsoring employers could then use this money to increase the productivity of their businesses – to boost wages and drive growth or unlock more money for pension scheme members.

It also pointed out that high growth and more productive businesses would boost the size of the economy, which in turn will fund "vital" public services.

The reforms build on the Chancellor’s Mansion House reforms, which included plans to create pension megafunds, in order to unlock "billions of pounds" of investment in new businesses and infrastructure and local projects.

Indeed, the government said that it is "determined" to encourage both DB and defined contribution (DC) pension schemes to deliver investment and drive economic growth, stating that this "is the only way to make people better off".

The move is also part of broader government action designed to remove blockages that are stopping growth.

This includes action taken by the government last week to bring a renewed focus on growth from some of the UK’s biggest regulators, a shake-up to legal challenges on planning applications, and new “brownfield passports” to speed up housing in commuter hotspots.

Commenting on the plans, Starmer said: "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. It needs creative reform, the removal of hurdles, and unrelenting focus.

"Whether it’s how public services are run, regulation or pension rules, my government will not accept the status quo. Today’s changes will unlock billions of investment, pushing forward in delivering my Plan for Change."

Adding to this, Reeves said: "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 Pensions Regulator (TPR) has also welcomed the proposed changes, as chief executive, Nausicaa Delfas, said: "Many DB pension schemes are better funded than at any point in recent history – with around 80 per cent of schemes fully funded.

"Our first priority must be to ensure pension scheme members have the best chance of receiving their promised benefits.

"Where schemes are fully funded and there are protections in place for members, we support efforts to help trustees and employers consider how to safely release surplus if it can improve member benefits or unlock investment in the wider economy."

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