Pension reforms could put savings at risk, group warns

Proposed reforms to pensions could risk putting thousands of schemes at risk of ‘collapse’, according to a group of insurers and pensioner bodies.

Yesterday (29 May) the government confirmed the new Pension Schemes Bill, which loosens rules around how surplus pension funds can be extracted from defined benefit (DB) schemes.

According to the Department for Work and Pensions, the new rules would “remove barriers to extraction” and revise the threshold at which pension trustees can share surpluses with sponsoring employers.

The reforms are part of a wider push to unlock investment into pension funds and free up money to grow the economy under the Mansion House accord.

Ministers say that relaxing the rules on extraction would allow companies to reinvest funds into business expansion, wage increases and further pension contributions.

But the newly formed Pension Security Alliance, made up of insurers including Just Group, the Pension Insurance Corporation and consultant John Ralfe, as well as organisations representing pensioners, has claimed this could turn pension schemes into “piggy banks for others to dip into”.

In a statement, it said: “Extraction before members’ benefits have been secured runs the risk of those schemes running short of money if financial conditions change. In that case, some schemes could collapse.”

The Alliance has urged the government to think again about the reforms.

The DWP has said these measures would only come into force under stringent safeguards, and will launch a formal consultation in the coming weeks.

Announcing the Bill yesterday, pensions minister Torsten Bell said the reforms would mean “bigger, better pensions schemes, delivering a better retirement for millions and high investment for Britain”.

The reforms will also give ministers a “reserve power” to force pension funds to invest in British assets if they do not do so voluntarily – a move that has also caused concern.

James Alexander, chief executive of the UK Sustainable Investment and Finance Association, said that making UK investment mandatory risked “distorting markets, creating asset bubbles and potentially lowering returns for pension savers”.

Currently, employers are prevented from taking surplus funding while running a scheme, although schemes can return surpluses to employers under certain conditions.

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