UK Treasury set for £100mn windfall from nationalised banks’ pension funds

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The UK Treasury is in line for a windfall of more than £100mn as it takes control of the pension schemes of two banks bailed out by the taxpayer during the 2008 financial crisis.

Jeremy Hunt, the chancellor, is expected to use his Autumn Statement next month to confirm the bonus for taxpayers and what it would be used for, as the Treasury absorbs the Bradford & Bingley and Northern Rock pension schemes, which are in surplus.

While the combined net surplus of both schemes is about £400mn, this was estimated on an accounting basis and the surplus set to be passed to the Treasury is expected to be about £100mn, several people with knowledge of the matter said.

Allies of Hunt said the surplus would probably be used to service government debt, noting that it had been partly generated by the injection of millions of pounds of taxpayer cash into the schemes.  

The money will make a tiny dent in the government’s debt. Public sector net debt was £2.6tn at the end of September with the interest payable that month at £700mn, according to the Office for National Statistics.

Prime Minister Rishi Sunak announced in 2020, when he was chancellor, the plan to take the banks’ pension obligations on to the government books. Both pension schemes are defined benefit plans, which pay a secure pension dependent on length of service, salary and age.

The surplus has largely been generated by rising interest rates reducing the plans’ liabilities.

The Treasury said: “We have long committed to creating a new statutory pension scheme for the members of these banks, and relevant preparations are ongoing.

“Any further updates will be announced at a future fiscal event.”

Following the nationalisations of Northern Rock and Bradford & Bingley during the financial crisis, UK Asset Resolution (UKAR) a government-owned vehicle was formed in 2010 as a holding company for the banks’ closed mortgage books, with a balance sheet of almost £116bn.

The two pension schemes at present reside under UKAR. They are due to be transferred on to the government’s books under the Public Service Pensions and Judicial Offices Act 2022. 

In its 2023 financial accounts, the vehicle reported assets of £1.48bn and liabilities of £1.07bn for both pension schemes. UKAR declined to comment. The trustees of the schemes did not respond to requests for comment.

UKAR has gradually been selling the assets of B&B and Northern Rock to the private sector.

In 2021, the government announced the £5bn sale of Bradford & Bingley and NRAM Limited — and their remaining loans, acquired by the taxpayer as a result of the financial crisis, to the private sector.

The development comes as the government faces calls to ease access to pension surpluses for private sector companies. After years of paying billions in deficit contributions, many employers are now reporting large surpluses in their company defined benefit plans.

The chancellor is expected to respond to a series of consultations on pension reform in the Autumn Statement.