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Jeremy Hunt is planning to overhaul a tax on company pensions in an effort to unlock tens of billions of pounds of investment in the UK economy.
The Telegraph understands that the Chancellor wants to use the Autumn Statement to slash a 35pc “penalty” tax rate that companies face when they withdraw cash surpluses from their pension schemes.
Companies currently enjoy corporation tax relief on contributions paid into defined benefit (DB) pension schemes, which promise a set retirement income to members.
However, withdrawing cash from pension schemes when they are in surplus currently incurs a 35pc tax charge.
The levy was first introduced in the 1980s to try to stop companies from building up surpluses to dodge tax. It has not changed since the start of the millennium.
Years of low interest rates have resulted in DB pension plans needing greater up-front contributions to meet their long-term obligations.
However, the recent surge in borrowing costs has had the opposite effect, leaving many schemes in surplus.
XPS, a pensions consultancy, believes around a quarter of operational DB pension schemes are currently running surpluses of around £10bn to £15bn.
Sir Steve Webb, a former pensions minister, said efforts to reform the 35pc tax and make it easier for companies to access surplus retirement fund cash would provide an immediate boost to investment.
He said: “If companies can take the money out, pay less tax on it when they do and take it out now, that’s the key thing. They don’t have to wait ten years to take a slice so you’re giving stimulus to the economy now.”
The so-called “authorised surplus payments charge” is also particularly onerous because it cannot be offset against a company’s tax bill, even if the employer receiving it is loss making.
One source suggested that reducing the charge to match the current level of corporation tax of 25pc would be a fairer approach.
However, government insiders said Mr Hunt may not need to slash the rate to 25pc to stimulate the economy and stressed that no final decisions had been made. Withdrawals would only be permitted for well-funded schemes. The Treasury declined to comment.
It came as separate research showed that recent bond market chaos has triggered the biggest exodus from stocks since the Liz Truss mini-Budget chaos. Rapidly rising bond yields triggered the biggest sell-off of equity funds since September 2022, according to global funds network Calastone.
Investors pulled £1.2bn from equity funds in October. This was the sixth month in a row of net selling and takes the total pulled from stocks so far this year to £2.88bn.
Edward Glyn, head of global markets at Calastone said: “Equity fund outflows are inevitable when bond markets are experiencing this wrenching repricing.”
Bond yields in the UK, the US and the Eurozone have rocketed to more than decade highs as markets price in the fact that interest rates will be higher for longer and amid fears about unsustainable levels of government debt.
Mr Glyn said: “The higher risk premium they demand in compensation is pushing bond yields up and prices down. And when longer-term market interest rates rise like this, asset prices of all kinds come under pressure.”
In October, investors pulled £739m from funds focused on UK stocks.
Funds focused on ethical, social and governance issues (ESG) also suffered their sixth consecutive month of net selling and their second worst on record as investors prioritised safer havens over social concerns. Investors have pulled a total of £3.14bn from the sector in six months.
Investors last month piled £586m of new cash into money market funds, which are considered a safe haven.