Public firms could be allowed to extract £50bn from staff pension schemes in bid to boost investment
Public firms could be permitted to withdraw up to £50bn from staff pension schemes if government plans for a sweeping shake up of the industry’s rules go ahead.
Returns on investments in government bonds – known as gilts – have seen workplace pension schemes go from being well in the red to significantly cashed up over the last 24 months.
It is thought firms including HSBC, Natwest, Sainsbury’s and Tesco are among the FTSE 100 groups that could be beneficiaries, according to the Times.
Actuary consultants at Barnett Waddingham found pensions schemes belonging to the FTSE 350 have a total of £50bn in surplus assets – above the 105 per cent funding the Pensions Regulator requires for them to be self-sustaining in case a sponsor, the employer, goes bust.
This equates to two thirds of the annual dividends paid by the 350 firms on the list last year.
Barnett Waddingham reckons more than a third of the FTSE 350 defined-benefit schemes were fully funded on a buyout basis as of May this year.
Investment boost
It comes as Chancellor Jeremy Hunt hopes to encourage UK pension schemes to make riskier investments in a bid to fire up Britain’s growth and productivity potential.
The Department for Work and Pensions opened a consultation in July on whether rules on sponsors withdrawing surpluses from defined-benefit schemes could be relaxed.
This is currently only allowed after a pension scheme is in ‘wind-up’, with a 35 per cent penal tax rate on any money paid out.
However, it is thought if sponsors had easier access to surplus cash, they might be more likely to make bolder investments, rather than opting for the safest assets possible.
Pension ‘surplus’
Mark Tinsley, of Barnett Waddingham, said: “Many schemes have seen large improvements in their funding positions over the past year and now have significant surplus funds.
“Sponsors stand to benefit considerably if the rules around returning surplus funds are relaxed, as is being considered under the Mansion House reforms.”
But Tinsley added: “Any reforms should ensure members of pension schemes are not adversely affected.”
Pensions are individually monitored by trustees – a separate person or company – who look after the schemes’ interests. They are expected to be cautious about changes, with calls for additional securities or guarantees in exchange for withdrawals anticipated.