DWP papers raise doubts over £160 billion surplus unlocking | Personal Finance | Finance

Hopes of a multi-billion pound pensions windfall to drive growth and raise incomes for retirees have been dealt a serious blow.

Official figures contained in DWP papers show just a tiny fraction of the touted £160 billion of surpluses held in private workplace pensions may actually be unlocked.

Labour’s chancellor, Rachel Reeves, had pinned part of her economic strategy on reforms to allow firms to dip into ‘trapped’ surpluses in traditional final salary pension schemes.

In theory the money would be used to invest in the businesses or boost pensions paid to scheme members.

But Department for Work and Pensions (DWP) figures suggest these reforms will free up only £8.4 billion over the next decade – or just £957 million a year. Some years, the figure could fall as low as £153 million.

This compares with the staggering £160 billion that Reeves and Sir Keir Starmer claimed in January was sitting idle in pension funds and could – potentially – be redirected into the economy or used to boost workers’ retirement pots.

Pensions expert John Ralfe, writing for Pension Insurance Corporation, poured cold water on such hopes.

He warned: “Forget about £160 billion of pension surpluses just waiting to be paid out ‘to drive growth and boost working people’s pension pots’.

“The DWP figures estimate just a fraction of this, mainly because most companies want a full buyout with an insurance company.”

The sobering figures from the DWP come in an impact assessment report published alongside the new Pension Schemes Bill, which the government claims will deliver ‘better outcomes’ for both businesses and savers.

According to the DWP, the modest £8.4 billion in surplus withdrawals will be split down the middle – with £4.2 billion going to employers and the rest to pensioners via higher payouts.

But some experts are sceptical that firms will use the funds to invest in growth or increase pensions.

Schroders and Aberdeen, two major employers already applying to access surpluses, are not proposing to channel the money into extra investment or pension increases.

Many companies, it appears, would rather use any surplus cash to pay to offload pension liabilities to outside insurers in order to end their long-term obligations.

This cautious approach may be driven by fears of future market volatility. At the same time, it is believed that trustees, who are responsible for protecting members’ interests, are likely to resist letting too much money leave the schemes.

A Downing Street statement in January had claimed: “Approximately 75% of [defined benefit pension] schemes are currently in surplus, worth £160 billion, but restrictions have meant that businesses have struggled to invest them.”

Defined benefit pension schemes, now largely closed to new workers, cover around nine million people and hold £1.2 trillion in assets. Most private sector workers are now enrolled in less generous defined contribution schemes.

A government spokesman insisted the reforms would still deliver benefits, saying: “Our proposals will unlock funds to boost the economy, remove barriers to growth and ensure working people and businesses are able to benefit from the opportunity these assets bring.”