The plan forms part of an initiative to unlock capital for investment in UK businesses.
Millions of pensioners at risk as Rachel Reeves plots new £40bn tax raid (Image: Getty)
New Government proposals could put millions of defined benefit pension scheme members at risk. The plans would let companies tap into surplus pension funds, with withdrawals subject to a 25% tax charge.
The plan, expected to be detailed this spring, is part of a wider initiative led by Chancellor Rachel Reeves to unlock capital for investment in UK infrastructure and business while simultaneously boosting Treasury revenues. Currently, many defined benefit (DB) schemes are in surplus, with consultants at Hymans Robertson estimating that around £160billion could be available to be drawn down.
The plan forms part of an initiative to unlock capital for investment in UK businesses. (Image: Getty)
Under the proposed reform, companies would be able to access these surpluses, provided certain protections are in place for scheme members. Any withdrawals would be taxed at 25%, potentially raising £40billion for the Exchequer, the Telegraph reports
Supporters of the plan argue that the reforms could help channel pension wealth into national priorities, including investment and economic growth. Nausicaa Delfas, chief executive of The Pensions Regulator, noted that approximately 80% of DB schemes are fully funded and said the regulator supports cautious efforts to release surplus funds where member benefits are safeguarded.
However, critics warn the move could jeopardise retirement incomes. Stephen Lowe, director at retirement provider Just Group, said there is a risk that drawing down surpluses prematurely or shifting towards higher-risk investments could compromise the security of pension promises.
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Mr Lowe said: “Every £10 billion withdrawn could net £2.5 billion in tax revenue,” adding that the measure prioritises fiscal gains over pensioner security.
He added: “Protecting pensions must be the first priority of any pension scheme. Extracting surplus and making riskier investments, before pensions have been guaranteed, could lead to less money in the scheme and therefore put retirements at risk.”
A recent survey by the Pension Insurance Corporation found that 60% of DB pension members fear the proposed changes could endanger their retirement benefits.
The Treasury has yet to provide a full response but is expected to present final details in the coming weeks.
The Treasury has been approached for comment.
