The government will today confirm government plans to lift restrictions on defined benefit (DB) scheme surpluses.

Prime Minister Keir Starmer and Chancellor Rachel Reeves will set out the details of changes at a meeting with leaders of Britain’s biggest businesses in London.

The Chancellor said the changes to pension rules would allow so-called 'trapped' surplus funds to be invested in the wider economy, fuelling economic growth.

She said the changes would allow pension trustees and sponsoring employers to use the money to increase the productivity of their businesses to boost wages and drive growth or unlock more money for pension scheme members.

Approximately 75% of pension schemes are currently in surplus to an estimated total level of £160bn, but restrictions have meant that businesses have struggled to invest the funds.

Currently DB scheme surplus can only be accessed where schemes passed a resolution by 2016, so not all schemes can access surplus even if trustees and sponsors both want to do so. The government said legislative changes could enable all DB schemes to change their rules to permit surplus extraction where there is trustee-employer agreement.

More than £1.1trn is held by pension funds in the UK and defined contribution pension schemes are set to manage £800bn worth of assets by the end of the decade. This Government said it is determined to encourage these pension funds to deliver investment and drive economic growth.The proposed reforms will build on the Chancellor’s Mansion House reforms which she said will create pension megafunds.

Sir Keir said: "To achieve the change our country needs requires rewiring the economy. It needs creative reform, the removal of hurdles, and unrelenting focus. Today’s changes will unlock billions of investment. The details of the DB surplus plans will be set out in the government's response to the Options for Defined Benefit Schemes consultation, which the Treasury said is due to be published in the spring.

The Pensions Regulator (TPR) said it supported the proposals. Nausicaa Delfas, chief executive, said: “Many defined benefit pension schemes are better funded than at any point in recent history – with around 80% of schemes fully funded.

“Our first priority must be to ensure pension scheme members have the best chance of receiving their promised benefits. Where schemes are fully funded and there are protections in place for members, we support efforts to help trustees and employers consider how to safely release surplus if it can improve member benefits or unlock investment in the wider economy.”

Rachel Vahey, head of public policy at AJ Bell, said: “There is no doubt a healthy surplus has built up in many DB schemes, thanks partly to the rise in long-term gilt yields which has led to a reduction in liability values. But there is no guarantee these clement financial conditions will continue, and if employers were simply allowed to access this newfound surplus as though it were a windfall, that would present a clear danger to the finances of the scheme.

“The government risks playing fast and loose with people’s financial later lives. It’s imperative that protection is built into any changes to prevent any future Maxwell-style raids on people’s pensions.”

Owen McCrossan, head of investments for Abrdn Group pension schemes, said: "Legislating to enable surplus extraction will increase the options available for DB pension schemes, and this additional choice could influence the way schemes invest and potentially increase allocations to high-growth UK assets.

"We emphasise the need for involvement from both trustees and sponsoring employers in surplus extraction discussions, including recognition of the role of sponsors in funding and risk-taking. New guidance from the Pensions Regulator will be essential to protect members’ interests and provide trustees with a clear set of guidelines in which they feel empowered to facilitate a run-on or surplus extraction proposal from their scheme’s corporate sponsor."