Chancellor set to unveil plans for unlocking corporate pension funds to boost growth

Chancellor Rachel Reeves is set to unveil plans aimed at unlocking substantial funds from corporate pension schemes to stimulate economic growth. According to information obtained by Sky News, Reeves will announce the potential release of over £60 billion from defined benefit (DB) pension schemes during a speech on Wednesday. Some estimates indicate that this figure could approach £100 billion.

The proposed surplus release is likely to feature in a forthcoming pension schemes bill, with discussions on this strategy having already taken place between Treasury officials, the Number 10 Policy Unit, and members of the 100 Group of FTSE-100 company finance chiefs. This meeting, hosted by Varun Chandra, a senior business advisor to Sir Keir Starmer, involved detailed deliberations on the initiative, according to a finance director briefed on the discussions.

Reeves’ plan is part of broader pension reforms initially introduced by the previous government and now being expedited under Labour. These reforms include advocating for the consolidation of local government pension schemes, which collectively have around £400 billion in assets.

In her inaugural Mansion House speech in November, the Chancellor suggested that her administration would facilitate "the biggest set of reforms to the pensions market in decades," aimed at unlocking investments to enhance business operations and infrastructure, while also improving retirement savings for individuals.

Further proposals are expected to include an overhaul of defined contribution (DC) schemes, which manage approximately £500 billion in assets, along with anticipated consolidation efforts in the years ahead. The Treasury has pointed to Australia and Canada as potential models for the UK to follow, as both countries leverage pension capital for significant domestic infrastructure investments.

While the surplus release strategy is viewed as a potential catalyst for economic investment, details remain unclear regarding how the released capital would be directed into UK growth initiatives and the role of pension trustees in this process.

The pensions industry has been advocating for surplus release for several years, with endorsements from organisations such as the Pensions and Lifetime Savings Association prior to the last election. Edi Truell, a notable financier in the pensions sector, expressed support for separating pension funds from their employers, suggesting that businesses ought to concentrate on core operations while pension funds are managed by specialised superfund managers.

The forthcoming speech occurs at a crucial moment for Reeves, as questions regarding her position have emerged following financial market fluctuations in the wake of her October Budget. Recently, at the World Economic Forum in Davos, she indicated a willingness to revise certain measures from her Budget, particularly those relating to non-domiciled individuals.

Reeves has faced criticism for allegedly undermining the economy since Labour’s significant election victory. However, she stated her desire for the UK to be more assertive in promoting its economic merits. Additionally, Reeves is central to the government’s strategy for reforming economic regulation, highlighted by the recent dismissal of the chairman of the Competition and Markets Authority.

The Chancellor’s upcoming speech is anticipated to reaffirm government support for major infrastructure initiatives, potentially including plans for a third runway at London Heathrow Airport, which has sparked some controversy. The Treasury has not commented on the anticipated content of Reeves’ growth speech as of Sunday.