Should I be concerned about my private pension if the Government wants to access these funds to boost the economy?

Steve Webb replies: I can entirely understand why you might be concerned about recent stories about government plans to use the money in our pensions to increase the growth rate of the economy.

This is, after all, your money and is there to give you an income in retirement rather than to help the Government delivers its policies.

However, in this case I think that there is the potential for the Government's plans to benefit the economy without putting your pension money at risk, provided that the necessary protections are put in place.

It's worth looking separately at the two main types of pensions as the Government's plans are very different for each.

These are 'defined contribution' or 'pot of money' pensions and 'defined benefit' pensions, commonly referred to as final salary pensions.

With regard to DC pensions, the Government's big idea is for more of us to be part of what it calls 'mega funds'.

The UK Government has looked enviously at the huge pension schemes operated in places like Australia and Canada and wants to do the same in the UK.

The Government points out that these large global pension schemes invest in the UK in a way that our own pension schemes often do not. And they have concluded that one reason for this difference is a lack of scale in UK pensions.

It is already true that the number of workplace DC schemes in the UK has been falling steadily and that more and more of them are combining into larger multi-employer schemes known as Master Trusts.

But the Government would like to speed this process up. It therefore plans to legislate to ensure that, over time, schemes below a certain minimum size (a floor of £25billion has been suggested) would have to merge with others.

On the face of it, you should not be unduly concerned if you are currently in a smaller multi-employer scheme and that scheme ends up merging with another.

There are some advantages to being part of a larger scheme, such as potentially lower admin costs per head, and possibly access to greater investment expertise.

The Government's modelling suggests that these 'mega funds' will on average deliver what they call 'slightly better' outcomes for members.

I should stress that the Government is not currently planning to tell these schemes how they must invest and it is definitely not taking money out of your pension to use for its own purposes.

It is simply trying to restructure the market so that there are fewer, bigger schemes and it hopes and expects that this will lead to more of the money being invested in growing the UK economy as a result of this greater scale.

A very different set of proposals is on the table for traditional defined benefit pension schemes.

For many years, the big concern about these schemes has been shortfalls or 'deficits'. As people have started to live longer and as the rate of return on investments has fallen, schemes have found themselves short of the money they need to meet all of their pension promises.

In response, employers have had to pump tens of billions of pounds into these schemes to get them up to a higher funding level.

But in the last few years there has been a dramatic transformation. On top of all the money that has been pumped in, increased interest rates mean the funding position of most DB schemes is unrecognisable compared with the situation just five years ago.

For example, figures published last week by the Pensions Regulator show that nearly half of all schemes have enough money today to write a cheque to an insurance company to guarantee all of the pension promises that have been made, whilst still having some funds left over.

The ideas being floated by the Government are about making it easier for companies to take out genuinely 'spare' cash from their scheme, over and above what is needed to pay all the pensions.

Provided that this money is genuinely spare, and that there are safeguards in case the funding position deteriorates in future, then this could be good news.

If companies are able to access these surplus funds, paying tax to the Government as they take the money out, this will improve the public finances and allow the company to invest more to grow its business, pay more to its employees and so on.

Some people have asked the question – not unreasonably – 'if these surpluses have arisen quickly, could they not disappear equally quickly?'.

Happily, the answer is 'not necessarily'. Without going into too much technical detail, there are ways in which pension schemes can 'lock in' the gains they have made in recent years so that they are more-or-less insulated against future market movements.

This means we should avoid the situation where money is taken out now only to be needed again later.

Another key safeguard is that the trustees who oversee the scheme will need to be happy with what is going on. They will not sign off on money being taken out if they feel that the security of member benefits is being jeopardised.

One idea which I would be keen to see progressed is providing additional protection for member benefits through strengthening the Pension Protection Fund.

The PPF exists to make sure members do not lose their defined benefit pensions if their employer goes bust, but there are limits to the compensation which it currently provides.

This includes only paying 90 per cent of pensions where someone is under pension age when the company goes bust.

Given that the PPF has managed its finances well over the years, and that company insolvencies have been lower than expected, it now has a reserve of around £13billion over and above the money it needs to pay PPF compensation to those who are entitled.

I would like to see PPF cover upgraded to 100 per cent of member benefits.

If this were to happen, trustees could be confident that even if the investments of their pension scheme did badly and the company behind the pension scheme went bust, full member benefits would be safe.

This should make them much more willing to talk to the company about allowing extraction of surplus funds, confident in the knowledge that they had done their job of ensuring pensions were paid in full.

In addition, trustees and sponsors may come to a deal whereby as part of allowing surplus funds to be extracted, some of the surplus funds would be used to boost member benefits.

In short, I think you are entirely right to be wary, and to want to understand exactly what the Government has in mind.

But I hope I have reassured you that there is no plan for the government to take over people's pension money.

In any reform, the interests of the member must come first as it is ultimately their money.

But there are ways in which around £2trillion in workplace pension savings could be made to work harder for the UK economy without putting people's hard-earned pensions at risk.