Prime Minister Kier Starmer and Chancellor Rachel Reeves, have announced new rules designed to give increased flexibility over how occupational defined benefit pension schemes are managed.
Under the proposals, restrictions will be lifted on how well-funded occupational defined benefit Pension schemes will be able to invest their surplus funds.
- According to the Government, approximately 75% of schemes are currently in surplus totalling £160 billion, but restrictions mean that businesses have struggled to invest them.
Under current rules, defined benefit scheme surpluses can only be accessed where schemes passed a resolution by 2016. In consequence, many schemes cannot access surpluses even if trustees and sponsors both wish to.
The proposed changes could enable all defined benefit schemes to amend their rules to permit surplus extraction where there is a trustee-employer agreement. Trustees would then have a number of options to agree with employers on how best scheme members could also benefit.
- 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, or to provide additional benefits to members of the pension scheme.
- It is hoped that releasing scheme surpluses will increase the productivity of businesses, boost wages and drive growth or unlock more money for pension scheme members.
The Government's press release notes that pension trustees have an overarching fiduciary duty to act in the best interests of their members. When considering surplus extraction, trustees must fund the scheme and invest its assets in a way that leads to members receiving their full benefits
Useful guides on this topic
Pensions: Tax rules and planning
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Pensions: Tax charge for excess contributions
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Employer pension contributions
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External link
HM Treasury press release: Pension reforms to go further to unlock billions to drive growth and boost working peoples’ pension pots