Chancellor Rachel Reeves's ambitious plans to unlock £160billion from pension surpluses for economic growth have been dramatically scaled back to just £11billionn over the next decade, according to a Department for Work and Pensions (DWP) assessment.
The report, released on Friday, found that businesses would use most of the expected surpluses in occupational schemes to offload their pension liabilities to insurance companies rather than invest in growth.
This represents a significant blow to the Chancellor's growth agenda, which had identified pension surpluses as a crucial pillar for boosting the UK economy during a period of severely restricted state funding.
According to the DWP assessment, as little as £8.4billion would be available for companies to invest in new equipment or technology, though the figure was likely to be nearer £11billion.
Rachel Reeves's pension plans have been dealt a massive blow
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"It is estimated that an additional £11.2billion surplus will be extracted as a result of the preferred option to legislate over a 10-year period," the Government report stated.
The dramatic reduction from the anticipated £160billionn stems from multiple factors, including that the legislation does not compel trustees of defined benefit funds to use surpluses for investment.
Most occupational final salary schemes have also reached a level where a buyout with insurance companies is possible, making this the preferred option for businesses.
Reeves had previously stated that approximately 75 per cent of final salary schemes were in surplus, worth £160billion, but restrictions had prevented businesses from investing these funds.
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The Chancellor outlined her vision in November's Mansion House speech, proposing the creation of pension megafunds from individual defined contribution schemes and merging local authority pension schemes to improve cost-effectiveness.
A pensions bill currently progressing through parliament would enable pension fund trustees to unlock trapped surplus funds, which Reeves said would increase investment in British businesses and stimulate economic growth.
Furthermore, the DWP report noted that across roughly 5,000 schemes, around nine million members are being supported with assets of approximately £1.2trillion.
John Ralfe, an independent expert writing for the Pension Insurance Corporation, criticised the scaled-back plans.
Ralfe explained: "Forget about £160billion of pension surpluses just waiting, as Rachel Reeves said, to be paid out to 'drive growth and boost working people's pension pots'.
"The DWP figures estimate just a fraction of this – under £12billion – will be paid out over the next 10 years, mainly because most companies want a full buyout with an insurance company.
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Britons are looking for more security when it comes to their pension savings GETTY"And the bill contains no details of how pensions will be protected if cash is withdrawn. Member security must be a priority with strict rules on repaying amounts if funding deteriorates."
Pensions minister Torsten Bell said: "I have read the impact assessment, and I am satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impact of the leading options."
This DWP assessment comes mere days before Rachel Reeves's Spending Review on June 11, which will outline how much each Government department will get in taxpayer funding.
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