UK Pursues Pension Fund Reform, Moves to Boost Economic Growth

The UK government is looking to alter how defined benefit pension plans are managed by allowing excess funds to be funneled to private firms. This should also help boost economic growth in an economy that needs a bit of help.

Today, Prime Minister Keir Starmer and Chancellor of the Exchequer Rachel Reeves told business executives that a change in rules will enable “trapped surplus funds to be invested in the wider economy, fuelling economic growth.”

Starmer stated:

“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.”

The government explains that around 75% of defined benefit plans have a surplus. Restrictions have limited these plans to reinvest the money which is said to be around £160 billion.

Legislative changes could enable all defined benefit plans to update their rules to permit “surplus extraction.”

Benjamin Craig, Associate Director of R&D Incentives at Ayming UK, says the change is a welcome move to unlock investment, but they still need more info as to how exactly a surplus could be used.

“Without a clear long-term strategy that demonstrates a commitment to bolstering business confidence, the reforms risk being a missed opportunity. It’s all well and good talking about investment – but what does this mean for businesses and SMEs who form the lifeblood of our economy? Directing funds to key areas like STEM skills development and supporting important innovating sectors such as manufacturing and green tech can boost the UK’s competitiveness and kickstart growth,” said Craig.

Craid said their in-house research indicates that businesses are prioritizing survival over innovation due to concerns about the UK economy.

“You can’t have sustainable growth without innovation, the latter being the foundation for higher productivity and stronger resilience. With many businesses struggling to cope with the extra burden of tax hikes, this is a great chance for the government to reassess its approach to innovation.”



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