Government proposals to use the surplus held in defined benefit (DB) pension schemes could unlock £340bn for schemes and encourage investment in UK growth, shifting DB schemes from a “drag on business performance” to a “real asset on the balance sheet,” PwC has said.

Launching a consultation on the use of DB surpluses last week, Pensions Minister Paul Maynard restated the government’s Autumn Statement commitment to simplifying ways in which trustees of well-funded schemes could use surplus to benefit sponsoring employers and scheme members.

Maynard said: “We will ensure that employers and savers alike can take advantage of strong investment returns, supported by the revised scheme funding regime, which makes the headroom for more productive investment explicit whilst keeping members’ benefits safe.”

PwC said that one of the proposed plans, through which schemes could release surplus above 105 per cent of their low reliance liabilities, could result in the unlocking of some £340bn for schemes.

The firm’s analysis, carried out in conjunction with its Low Reliance Index, showed that more than 5,000 corporate DB schemes reached £390bn in February (assuming investment in low-risk, income generating assets like bonds).

PwC’s head of pension funding and transformation, John Dunn said: “This combination of removing barriers around extracting ‘trapped’ surplus for the benefits of the members and/or sponsor, whilst at the same time enhancing safeguards for member benefits, could cause a significant shift in the pensions landscape and in the choices made on the best strategy for each scheme.”

He added: “DB pension schemes, once seen as a drag on business performance requiring significant financing, could now be viewed as a real asset on the balance sheet.”

The DWP’s consultation will also explore the potential value in introducing a ‘super levy’ payable to the Pensions Protection Fund, which would protect members’ full benefits in the event of sponsor insolvency.

PwC also predicted positive outcomes for “smaller or less well-funded schemes” which are are less likely to be able to access the insurance buyout market.

The proposed creation, by 2026, of a public sector vehicle to consolidate such schemes would “provide a new endgame destination for a significant number of DB pension schemes,” said PwC’s head of alternative pension solutions, Matt Cooper.

“While there will be operational changes that have to be overcome – for example, it won’t be an easy feat to move individual schemes onto a standard benefit structure – this could provide an alternative lower cost and secure solution for these schemes,” Cooper added.

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