{"id":26905,"date":"2025-03-19T16:51:01","date_gmt":"2025-03-19T16:51:01","guid":{"rendered":"https:\/\/www.open.ac.uk\/blogs\/news\/?p=26905"},"modified":"2025-03-21T16:54:56","modified_gmt":"2025-03-21T16:54:56","slug":"five-things-you-need-to-know-about-releasing-trapped-pension-surpluses","status":"publish","type":"post","link":"https:\/\/www.open.ac.uk\/blogs\/news\/arts-social-sciences\/society-politics\/five-things-you-need-to-know-about-releasing-trapped-pension-surpluses\/","title":{"rendered":"Five things you need to know about: releasing trapped pension surpluses"},"content":{"rendered":"

In a bid to fuel-inject the economy and provide opportunity for growth, the UK Government is intending to announce plans to make it easier to tap into the surplus funds lying in corporate pension schemes. Following an earlier <\/em>heads-up about this intention<\/em><\/a>, we can expect the Chancellor Rachel Reeves to reveal more in the coming weeks about unlocking this untapped capital to drive economic growth.\u00a0 <\/em>It\u2019s estimated that there is anything from \u00a37 billion to \u00a3207 billion<\/em><\/a> of surplus wealth trapped inside these UK pension schemes. <\/em><\/p>\n

The OU’s Senior Lecturer in Economics and Personal Finance Jonquil Lowe<\/a> gives some answers on this emerging proposal:<\/em><\/p>\n

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    Could this affect you?<\/strong><\/h2>\n<\/li>\n<\/ol>\n

    You may belong to one of these pension schemes through your current or a previous employer.<\/p>\n

    However, not all workplace pension schemes are involved: only the type of pension schemes that work on a \u2018defined-benefit<\/em>\u2019 basis. These are schemes that promise you a pension at retirement that is typically based on a specified fraction of your average earnings for each year you\u2019ve been in the scheme. (For example, someone earning \u00a330,000 with 10 years\u2019 membership and a 1\/60th<\/sup> fraction would get \u00a330,000 x 10 x 1\/60 = \u00a35,000 in pension.)<\/p>\n

    This is in contrast to defined-contribution<\/em> schemes, ones where you simply build up your own pot of savings but don\u2019t know exactly how much pension that will give you.<\/p>\n

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      Where do the surpluses come from?<\/strong><\/h2>\n<\/li>\n<\/ol>\n

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      With a defined benefit scheme, it’s all about the pension scheme having enough assets to pay the pensions you and the rest of the members are promised.<\/p>\n

      If the assets outweigh the value of the pension promise, the scheme is in surplus.<\/u> At present, most schemes have no way of removing the surplus from the scheme, hence the government\u2019s proposal to make use of them to fund growth.<\/p>\n

      Defined-benefit schemes work by making sure they can pay the pension promises by investing the contributions you and your employer make into what\u2019s called a pension fund.<\/p>\n

      Every now and again the value of the pension promises is compared against the value of the investments (those are the scheme\u2019s assets) to make sure the scheme is still on track to make all the current and future pension payments.<\/p>\n

      Of course there is not always a surplus. If the assets are too low, the scheme is said to be \u2018in deficit\u2019 and the employer will have to top up the pension fund. Being in deficit doesn\u2019t directly affect your pension \u2013 you should still get what you\u2019re promised. But it might encourage your employer to close the scheme, as many employers have done in the past. And in the worst case, if your employer went bust and so couldn\u2019t top up the scheme, your pension might be transferred to a protection scheme which would not usually pay the full pension you had been expecting.<\/p>\n