Millions of pension holders could face significant hits to their retirement funds under the Government’s new policy.
The controversial move, announced in January, has been described as a £40billion tax grab that could potentially impact 8.8 million people.
The government argues the policy will unlock billions for investment in UK infrastructure and help revive the struggling London stock market.
But pension experts are warning it may come at the cost of long-term financial security for retirees.
Under the new rules, companies will be able to extract excess money from well-funded pension schemes.
The funds can be used for a variety of purposes – such as increasing shareholder dividends, investing in growth or shoring up balance sheets.
Chancellor Rachel Reeves refused to rule out tax hikes for Britons as she was grilled by the committeeParliament TVAny money taken will be subject to a 25 per cent tax, meaning the Treasury would collect £2.5bn for every £10bn withdrawn.
According to consultants Hymans Robertson, around £160bn could potentially be accessed across the UK’s defined benefit schemes — presenting a significant opportunity for both businesses and the government.
Stephen Lowe, director at retirement specialists Just Group, raised concerns that tax revenue may be the real motivation behind the move.
He said: “Most commentators have been fixated on how this surplus is going to be funnelled into building UK reservoirs and bridges, but they’ve missed a more immediate benefit the Chancellor is targeting—tax revenue.”
Retirement crisis looms as millions at risk under Reeves’s new £40bn tax grab
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Lowe added: “For every £10bn of pension fund surplus extracted, £2.5bn goes straight into the Treasury’s bank account.”
While companies have the freedom to reinvest the surplus funds, Lowe warned that doing so before fully securing pension promises could put people’s retirements at risk.
“Extracting surplus and making riskier investments, before pensions have been guaranteed, could lead to less money in the scheme,” he said. “That’s a serious risk.”
He also pointed to recent market turbulence as a warning sign.
More details on how the policy will be implemented are expected in the coming months
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“The turbulent investment environment witnessed in the last week is a stark reminder that putting pension money in higher risk assets can be a dangerous pursuit.”
The proposals have sparked a wave of concern across the industry, with many experts urging the government to ensure pension security is prioritised over short-term financial gains.
More details on how the policy will be implemented are expected in the coming months.
