The pensions industry has expressed its disappointment at the omission of reform to defined benefit (DB) pensions in the Mansion House speech.

Chancellor, Rachel Reeves, unveiled a range of pension changes in her first Mansion House speech, including the creation of defined contribution (DC) and Local Government Pension Scheme (LGPS) ‘megafunds’.

However, many were expecting reforms to DB schemes, especially changes to how schemes can use their surpluses, to be included.

“It’s disappointing that the Chancellor missed the opportunity to use the Mansion House speech to provide the DB sector with clarity around the proposals to make it easier for pension scheme surplus to be returned to sponsors,” said Brightwell CEO, Morten Nilsson.

“As it stands, the current regulatory and legislative regime incentivises trustees and sponsors to pursue insurance buyouts as soon possible and more needs to be done to support those well-funded schemes with strong covenants who want to run-on.

“Schemes that run-on can invest in a wider range of assets for longer, retaining value for the benefit of members, sponsors and UK plc. The government shouldn’t overlook this important part of the market.”

While Association of Consulting Actuaries chair, Stewart Hastie, praised the bold ambition of the DC and LGPS changes, he said that the “real disappointment” was the lack of anything on private sector DB pensions, and taking forward a vision for how these schemes can support economic growth and better outcomes for members.

“We would like to see greater support and flexibility being brought forward on how surpluses can be utilised for the sponsors and members (and help with releasing some £100bn to £250bn of surplus over the next 10 years) combined with regulatory guidance that focuses on managing surpluses (as opposed to funding deficits) to ensure appropriate safeguards are in place and help trustee navigate the requirements of their fiduciary duties,” he stated.

Meanwhile, Van Lanschot Kempen head of client solutions UK, Nikesh Patel, warned that the government’s LGPS pooling plans on their own were unlikely to unlock the growth it is seeking.

“From what we know so far, it seems that the Mansion House speech does not consider how to incentivise corporate DB pension schemes to efficiently utilise surpluses sitting with some of the largest UK employers,” Patel continued.

“This would be far more effective in accelerating economic growth, and more beneficial to a much wider range of UK companies and UK asset classes, than further LGPS pooling – noting too that this pooling falls short of the Canadian model and, will still leave most of the 8 pools unable to match the reach of their international peers.

“In aggregate, well-funded UK DB pension schemes have, conservatively, around £300bn in surpluses today on an insurance buyout basis, held by many of the largest employers in the UK who could materially direct investment back into the UK.

“Over the next 10 years, our calculations suggest that this surplus number could grow to £1trn, a large proportion of which could be put towards investing productively in a portfolio of long-term, diversified, public and private UK-focused assets, without additional risk to members’ savings.

“In fact, by putting DB surpluses to work, the Treasury could solve two pensions headaches with one stone: channelling capital into U.K. companies and protecting the retirements of younger generations.

“Our research shows that DC members could potentially increase their retirement pot by up to £1,000 a year, or 40 per cent over their working lifetime, if employers capitalise on surpluses in well-funded DB schemes.

“Ignoring the billions of pounds sitting in DB surpluses is a missed opportunity that would have a larger and faster impact on the economy than today’s proposals.”

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