Rachel Reeves will this week announce plans to unlock tens of billions of pounds from corporate pension schemes as part of government plans to kickstart economic growth.
Sky News has learnt that the chancellor will use a crucial speech on Wednesday to disclose that she wants to use so-called surplus release to boost investment in the economy.
Government sources said it could unlock more than £60bn of pension surpluses held in defined benefit (DB) schemes, while other estimates suggested the figure could be in the region of £100bn.
The surplus release plan could be included in a pension schemes bill expected to be published in the coming months.
City sources said that a meeting had taken place earlier this month which was attended by Treasury officials, members of the Number 10 Policy Unit and representatives of the 100 Group of FTSE-100 company finance chiefs.
The meeting, which was hosted by Varun Chandra, Sir Keir Starmer’s top business adviser, discussed the surplus release plan in detail, according to one finance director briefed on the talks.
Ms Reeves’s move will form part of a wider set of pensions reforms initiated under the last government and now being accelerated by Labour.
These include forcing the merger of local government pension schemes, which collectively hold about £400bn of assets.
In her maiden Mansion House speech in November, the chancellor said she would preside over “the biggest set of reforms to the pensions market in decades to unlock tens of billions of pounds of investment in business and infrastructure, boost people’s savings in retirement and drive economic growth so we can make every part of Britain better off”.
An overhaul of defined contribution (DC) schemes, which in aggregate manage £500bn in assets, is also on the cards, with consolidation there also anticipated in the coming years.
The Treasury has cited Australia and Canada as examples of the model Britain’s pensions system should seek to emulate, with both countries utilising pension scheme capital to invest more heavily in domestic infrastructure.
The surplus release plan has the potential to be a major catalyst for economic investment, although it was unclear this weekend how the deployment of this capital into UK growth initiatives would be guaranteed.
It was also unclear the extent to which pension trustees would play a role in any surplus release plans.
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The pensions industry has been pushing for surplus release to be adopted in Britain for years, with the Pensions and Lifetime Savings Association having endorsed such a move before last year’s election.
Edi Truell, the prominent financier and pensions entrepreneur, said on Sunday: “It is time to split DB pension funds from their employers.
“The employers should be focussing on their core business; and the pension funds be backed by capital from specialist pension superfund managers.”
“The Pensions Regulator needs to replace its misguided views of “risk” and recognise that investment in productive assets in the long term provides better pension outcomes.”
Ms Reeves’s speech on Wednesday will come at a critical time for her, with doubts having been raised about her grip on her job for the first time in recent weeks amid financial market volatility in the aftermath of her October Budget.
Speaking at the World Economic Forum in Davos last week, Ms Reeves indicated that she would row back from a number of Budget measures, including relating to the treatment of non-doms.
Having been repeatedly accused of talking down the economy in the wake of Labour’s landslide general election victory, she said this weekend that she wanted Britain to be less “polite” about championing its economic virtues.
The chancellor has also formed a pivotal part of the government’s move to shake up economic regulation, with the removal last week of the chairman of the Competition and Markets Authority.
Sky News revealed several weeks ago that Sir Keir had written to watchdogs to urge them to remove barriers to growth, with meetings between the chancellor and regulators set to continue in the coming weeks.
The chancellor’s speech this week is expected to confirm government support for major infrastructure projects, including – controversially – a third runway at London Heathrow Airport.
The Treasury declined to comment on Sunday on the contents of the chancellor’s growth speech.