A plan to unleash billions of pounds tied up in pensions will do little to boost economic growth, it has been warned.
The Department for Work and Pensions laid out plans in May to change the rules around how pension companies access “extra money” in defined benefit (DB) schemes in an effort to pump £160 billion into the economy.
Official forecasts now show that the move — which experts have warned could water down safeguards and put millions of savers’ pensions at risk — will instead lead to only £11 billion being funnelled into the economy over a decade.
Surpluses occur when a pension scheme amasses more money than it needs to pay out all of its members’ pensions. For years, employers have been paying extra money into their employee’s pension schemes to prepare for “bad years” — when their investments do not perform as well as forecast, or people live longer than expected, meaning that their assets might fall short of how much they owe their members. Luckily, these bad years haven’t been as frequent as feared, and the extra cash has grown.
The government had estimated that pension schemes had built up a collective surplus of more than £160 billion, adding that the money was “ready to boost growth”. The idea is that the new rules would allow companies to withdraw this money more easily and divide it among shareholders, pension members and the company itself, which would ultimately benefit the economy.
