UK Explores Reforms Allowing Pensions to Invest Surplus Assets

The changes could unlock $200 billion that could be applied to different projects.



A majority of U.K. pension funds have a funding surplus; 75% of them to be exact, according to the U.K. treasury. Their total represents more than 160 billion pounds ($199.08 billion) in surplus assets, but for U.K. plans, it is often difficult to access these surpluses.

Chancellor of the Exchequer Rachel Reeves and Prime Minister Keir Starmer on Tuesday unveiled reforms that would make it easier for pension funds to invest their surplus assets in a roundtable discussion with CEOs.

According to a statement from the Treasury, if the trustees of a plan agree to share a portion of the surplus with an employer, the employer could use the funds in their core business, including purchasing equipment and supplies, as well as providing additional benefits to beneficiaries.

Details of the surplus policy will be released in the spring, according to the Treasury. 

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Currently, defined benefit plans can only access surplus assets if the plan had passed a resolution to do so by 2016, so not all plans in the U.K. are currently able to do so, even if trustees and sponsors both agree. Sections 37 and 76 of the Pensions Act 1995 and Section 251 of the Pension Act 2004 regulate surplus extraction.

“Unlocking surplus capital from defined benefit schemes has the potential to both boost UK growth by opening up investment opportunities for companies and their stakeholders, as well as the possibility of higher pensions for scheme members,” said Jonathan Lipkin, director of policy, strategy and innovation at the Investment Association, in a statement. “With around £1.1 trillion in assets, defined benefit schemes already make a significant contribution to the funding of the UK economy and public services.”

Reeves has sought significant pension reform in the U.K. and sees the country’s pension system as a potential driver of increased economic growth and activity. Reeves has also proposed the consolidation of small, local government schemes into larger “megafunds,” which could invest more like a larger institutional investor. 

Reeves has often pointed for inspiration to the Canadian “Maple 8” public pension funds, the eight largest Canadian pension funds which operate with significant independence from the government, manage a significant share of assets internally and are known for strong governance. The Canadian funds are known for their significant investments in real assets and infrastructure, classes in which Reeves has called for more domestic U.K. investment.

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Australia’s Hostplus Names Deputy Co-CIO

The hospitality industry superannuation fund promoted Susan Orr from within.



The Hostplus Superannuation Fund has promoted Susan Orr to deputy CIO following the recent departure of Con Michalakis, who took  the top investment job at Funds SA. The A$115 billion ($71.90 billion) industry superannuation fund for hospitality workers confirmed that Orr will now serve as co-deputy CIO alongside Greg Clerk. She will report to CIO Sam Sicilia.

Most recently, Orr was head of investment research and real assets—a role she assumed last June after seven months with the fund.

Orr joined Hostplus from Jana Investment Advisers, where she worked for 12 years as head of infrastructure. Before that, she served as a senior associate in the infrastructure, utilities and renewables group at Macquarie Capital. Earlier in her career, Orr was an economic researcher at what was then consulting firm ACIL Tasman.

Orr’s appointment surprised some investment professionals, given her relatively short time in the superannuation industry. However, they accept that her consulting experience with Hostplus would help a smooth transition into her new role.

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Industry insiders told Financial Standard that Clerk is also a former Jana employee, which means that Hostplus’ two most senior people after Sicilia come from the asset consultant.

In addition, before becoming the fund’s CIO in 2008, Sicilia had held several roles in asset consulting with Russell Investments, Frontier and Towers Perrin.

Michalakis will begin his role at Funds SA, the investment corporation owned by the government of South Australia, in February, replacing Matt Kempton, who has led the investment team for the last six months as acting CIO.

This article originally appeared in our sister publication, Financial Standard, which, like CIO, is owned by ISS STOXX.

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