UK Government Proposes Using DB Pension Surplus to Boost Economic Growth

The UK government, led by Prime Minister Keir Starmer and Chancellor Rachel Reeves, is set to announce plans to unlock surplus funds from well-funded defined benefit (DB) pension schemes to drive economic growth. The proposal will be outlined during a meeting today (28 January 2028) with top business leaders in the City of London.

Unlocking Pension Surplus for Economic Growth

The initiative aims to lift existing restrictions on occupational DB pension funds, allowing them to reinvest surplus assets into businesses and the broader economy. This follows the government’s recent efforts to prioritize economic expansion, streamline planning regulations, and introduce “brownfield passports” to fast-track housing development in key commuter areas.

Starmer emphasized the need for bold economic reforms, stating, “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.”

Reeves echoed this sentiment, adding, “I know this government and businesses are united on growth being the top priority for our economy, which is why I am fighting every day to tear down the biggest barriers to growth, taking on regulators, planning processes, and opposition to this urgent mission.”

Boosting Private Sector Investment

During the meeting, Starmer and Reeves will assure CEOs that the government is committed to fostering a business-friendly environment. By allowing pension trustees and sponsoring employers to access a portion of pension scheme surpluses, companies can reinvest in productivity, wage growth, and business expansion.

For businesses, this could mean using pension surplus funds for capital investments such as purchasing equipment, increasing employee salaries, or even enhancing pension benefits for members. Trustees who approve surplus sharing arrangements with sponsoring employers may see these funds directed toward business growth and workplace pension contributions.

Pension Reforms and Economic Impact

Currently, around 75% of DB pension schemes are in surplus, collectively worth an estimated £160 billion. However, strict regulations have limited businesses’ ability to leverage these funds effectively. The latest reforms build upon the chancellor’s Mansion House reforms, which seek to create pension mega funds, unlocking billions for investment in high-growth businesses, infrastructure, and local projects.

With over £1.1 trillion in UK pension funds and defined contribution (DC) pension schemes projected to manage £800 billion by 2030, the government aims to channel these vast resources into economic growth initiatives. “This government is determined to encourage these pension funds to deliver investment and drive economic growth – which is the only way to make people better off,” the statement added.

Encouraging Ambitious Investment Strategies

Industry experts have welcomed the move, provided member benefits remain protected. Zoe Alexander, Director of Policy and Advocacy at the Pensions and Lifetime Savings Association (PLSA), stated, “The PLSA backs surplus release, with the right protections in place to ensure member benefits are secure. Surpluses could be used to increase DB scheme benefits or could be redirected to fund contributions to sponsoring employers’ defined contribution workplace schemes.”

She also suggested that reducing legislative barriers to surplus release could encourage trustees and employers to adopt more ambitious investment strategies, leading to increased investment in UK assets.

Ian Mills, Partner and Head of DB Endgame Strategy at Barnett Waddingham, argued that existing rules have incentivized pension schemes to de-risk excessively, ultimately harming economic growth. “That has led to value destruction on a colossal scale,” Mills explained. “DB schemes invest overly prudently, starving the UK economy of the capital it so desperately needs to grow.”

He further highlighted that many schemes transfer funds to the insurance sector prematurely, diverting significant value away from businesses. “Reforming the rules in the right way would be to the benefit of all key stakeholders. Companies will be able to access surplus funds locked up in their schemes, and members will have the opportunity to share in that, increasing their benefits,” Mills concluded.

A New Era for Pension Fund Investment

As the UK government moves forward with these pension reforms, businesses and pension trustees alike will need to evaluate how best to utilize surplus funds while ensuring financial security for scheme members. If successful, these changes could unlock billions in investment, fueling job creation, business expansion, and long-term economic growth across the country.