Millions of savers could see their retirement pots put at risk under sweeping new pension reforms unveiled by the government, leading experts and campaigners have warned.
A series of proposed changes, confirmed on Thursday as part of the new Pension Schemes Bill, would loosen rules on how surplus funds can be extracted from defined benefit (DB) pension schemes — allowing employers to reclaim billions of pounds that are currently locked within retirement funds.
The Department for Work and Pensions (DWP) said it intended to “remove barriers to extraction” and revise the threshold at which pension trustees can share scheme surpluses with sponsoring employers. Ministers claim the proposals could help boost economic growth by enabling companies to reinvest the funds into business expansion, wage increases or further pension contributions.
But pensions industry leaders have voiced serious concerns about the potential fallout for more than ten million people who are members of DB schemes, warning that loosening the rules could undermine long-term security and destabilise well-funded schemes.
The newly formed Pension Security Alliance — comprising pension insurers Just Group and Pension Insurance Corporation, consultant John Ralfe, and organisations representing pensioners — said the reforms threatened to turn pension schemes into “piggybanks for others to dip into.”
In a statement, the Alliance warned: “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.”
They urged ministers to “think again” and stressed that the government itself had previously cautioned that relaxing surplus rules could reduce protection for members.
The DWP has insisted the measures would only take effect with “stringent safeguards” and the full discretion of scheme trustees. A formal consultation is due to be launched in the coming weeks.
“The goal is to deliver benefits for both employers and members,” a government spokesperson said. “Employers could use this funding to invest in their business, increase productivity, boost wages or utilise it for enhanced contributions.”
But fears about erosion of protections have been compounded by a separate “reserve power” in the legislation that would allow ministers to impose binding asset allocation targets on pension funds — effectively compelling schemes to invest in UK assets such as infrastructure and private companies if they do not do so voluntarily.
James Alexander, chief executive of the UK Sustainable Investment and Finance Association — which represents over 300 financial services firms with a combined £19 trillion under management — said the prospect of mandatory investment posed major risks.
“Mandation risks distorting markets, creating asset bubbles and potentially lowering returns for pension savers. It could also push some schemes into riskier assets than appropriate,” Alexander said.
The Investing and Saving Alliance also expressed concern, warning that schemes must not be forced “down a path which could jeopardise member outcomes”.
The government’s push to unlock pension capital to stimulate economic growth follows July’s Mansion House Accord, where 17 of the UK’s largest pension providers pledged to voluntarily invest £25 billion in UK private assets by 2030. Ministers now appear ready to wield legislative levers to ensure that commitment is met.
Torsten Bell (Pictured), the newly appointed pensions minister, said the reforms were not about prescribing specific investment strategies, but about unlocking the full potential of Britain’s £3.5 trillion pensions industry. “We’re making pensions work for Britain,” Bell said, describing the reforms as a means to “boost returns for workers and invest in Britain’s future”.
The government estimates that around three-quarters of DB schemes are in surplus and collectively hold approximately £160 billion in surplus assets, though some analysts put the figure closer to £360 billion. These figures, however, can fluctuate rapidly with changes in interest rates, inflation expectations and life expectancy forecasts.
John Ralfe, a veteran pensions consultant and member of the Pension Security Alliance, said the legislation must be tightly drafted to define surpluses “on a tough basis”, and any employer who draws from a surplus must remain liable to top up the scheme if deficits later emerge.
Some observers, including Daniela Silcock of the Pensions Policy Institute, acknowledged the proposals could bring certain benefits if properly managed — particularly by encouraging more schemes to continue operating independently, rather than offloading liabilities to insurers.
“A change that encourages more schemes to continue running and to pay benefits directly, rather than transferring to an insurer, could help members by maintaining flexibility, avoiding transaction costs, and potentially preserving higher benefit value,” Silcock said.
Nevertheless, the central question remains: will the reforms genuinely enhance retirement security — or simply shift risk from company balance sheets to individual pensioners?
With the Autumn Budget on the horizon and scrutiny intensifying over government plans to reshape Britain’s pension system, this debate is far from over.
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‘Not pension piggybanks’: experts warn millions of savers at risk under government reform plans