Hopes of a multi-billion pound pensions windfall to drive growth and raise incomes for retirees have been dealt a serious blow.
Official figures contained in DWP papers show just a tiny fraction of the touted £160 billion of surpluses held in private workplace pensions may actually be unlocked.
Labour’s chancellor, Rachel Reeves, had pinned part of her economic strategy on reforms to allow firms to dip into ‘trapped’ surpluses in traditional final salary pension schemes.
In theory the money would be used to invest in the businesses or boost pensions paid to scheme members.
But Department for Work and Pensions (DWP) figures suggest these reforms will free up only £8.4 billion over the next decade – or just £957 million a year. Some years, the figure could fall as low as £153 million.
The sobering figures from the DWP come in an impact assessment report (Image: Getty)
This compares with the staggering £160 billion that Reeves and Sir Keir Starmer claimed in January was sitting idle in pension funds and could – potentially – be redirected into the economy or used to boost workers’ retirement pots.
Pensions expert John Ralfe, writing for Pension Insurance Corporation, poured cold water on such hopes.
He warned: “Forget about £160 billion of pension surpluses just waiting to be paid out ‘to drive growth and boost working people’s pension pots’.
“The DWP figures estimate just a fraction of this, mainly because most companies want a full buyout with an insurance company.”
The sobering figures from the DWP come in an impact assessment report published alongside the new Pension Schemes Bill, which the government claims will deliver ‘better outcomes’ for both businesses and savers.
According to the DWP, the modest £8.4 billion in surplus withdrawals will be split down the middle – with £4.2 billion going to employers and the rest to pensioners via higher payouts.
But some experts are sceptical that firms will use the funds to invest in growth or increase pensions.
Schroders and Aberdeen, two major employers already applying to access surpluses, are not proposing to channel the money into extra investment or pension increases.
Many companies, it appears, would rather use any surplus cash to pay to offload pension liabilities to outside insurers in order to end their long-term obligations.
This cautious approach may be driven by fears of future market volatility. At the same time, it is believed that trustees, who are responsible for protecting members’ interests, are likely to resist letting too much money leave the schemes.
A Downing Street statement in January had claimed: “Approximately 75% of [defined benefit pension] schemes are currently in surplus, worth £160 billion, but restrictions have meant that businesses have struggled to invest them.”
Defined benefit pension schemes, now largely closed to new workers, cover around nine million people and hold £1.2 trillion in assets. Most private sector workers are now enrolled in less generous defined contribution schemes.
A government spokesman insisted the reforms would still deliver benefits, saying: “Our proposals will unlock funds to boost the economy, remove barriers to growth and ensure working people and businesses are able to benefit from the opportunity these assets bring.”
State pensioners claiming before this date can get extra £5,496 from DWP
Eligible pensioners over 80 can boost their State Pension payments (Image: Getty)
State pensioners who started claiming their pension before one specific date can add up to £5,496.40 extra per year to their State Pension pot by making one application.
Eligible retirees with either a basic State Pension of less than £105.70 per week, or no basic State Pension at all, can claim an ‘over 80 pension’ from the Department for Work and Pensions (DWP). If you are a man born before April 6, 1951, or a woman born before April 6, 1953, then you’ll get the basic State Pension, which is now worth up to £176.45 per week if you get the full rate. This is thanks to a 4.1% uprating from April 7, which increased weekly payments from the previous rate of £169.50.
To get the full weekly payment, men born between 1945 and 1951 usually need 30 qualifying years of National Insurance (NI), or 44 qualifying years if you were born before 1945. By comparison, women born between 1950 and 1953 usually need 30 qualifying years, and those born before 1950 need 39 years.
Read More: State Pension age change for anyone born after 1977
So if you have less than the full number of qualifying NI years then your State Pension payments will be less than £176.45 per week.
But the good news is that if your State Pension payments are less than £105.70 per week – and you’re aged 80 or over – then you can top up your weekly earnings by claiming the over 80 pension from the DWP.
The DWP says those who reached State Pension age on or after April 6, 2016, cannot get the over 80 pension, so if you started claiming the pension payouts from the DWP after this date you won’t be eligible to claim the extra money.
If you’re eligible, the amount you’ll get will depend on how much basic State Pension you get – if any – but if you’re getting less than £105.70 weekly, then you could get the difference paid up to this amount.
The DWP says an 80 year old who gets £43 per week basic State Pension, for example, would get an extra £62.70 to top up their weekly amount to £105.70. So over a year, this would add up to £5,496.40 extra to your pension.
You must have been a UK resident for at least 10 years out of a 20 year period, which must include the day before you turned 80 or any day after, or you were ‘ordinarily resident’ in the UK, the Isle of Man or Gibraltar on your 80th birthday, or the date you submitted your claim for the over 80 pension.
Unlike the basic and new State Pension schemes, your eligibility for the over 80 pension isn’t based on National Insurance contributions. Claimants should also note that the over 80 pension counts as taxable income, so if you’re claiming any other benefits these could be affected.
You can apply for the scheme by requesting a claim form from your local Jobcentre Plus, or by calling the Pension Service on 0800 731 7898. The earliest you can submit a claim is up to three months before your 80th birthday, or any time after.
