The government has announced forthcoming changes to the regulations governing how employers and pension trustees manage and invest surplus funds in corporate defined benefit pension schemes. Current estimates indicate that approximately 3,750 corporate defined benefit schemes collectively hold a surplus of £160bn. Under the new rules, employers will be allowed (with trustee consent) to withdraw surplus funds from their schemes and reinvest them directly into their businesses. This initiative aligns with the government's broader strategy to stimulate investment and foster growth within British companies.

Defined benefit schemes, which are increasingly being phased out due to their financial burden on employers, are often viewed as unwanted, volatile and expensive. However, this regulatory change could incentivise businesses to retain these schemes, transforming them into valuable investment assets. It is important to note that businesses will be subject to a 25% tax on any funds extracted before reinvestment.

As with any investment, there is inherent risk, and the value of investments can fluctuate. To mitigate the risk of schemes transitioning from surplus to deficit, the government plans to implement thresholds to prevent too much surplus from the pension scheme to be returned to the employer.

While this policy aims to boost investment in British companies, it remains to be seen how many employers will take advantage of these new opportunities.