Pensions minister Steve Webb has proposed the creation of a new hybrid pension scheme that would not be subject to the same strict regulations of defined benefit schemes and offer employers more flexibility to react to market conditions.
According to the FT, Webb (pictured) floated the proposal for defined aspiration pensions in a speech to the National Association of Pension Funds last night.
It says the Government is looking to encourage employers to offer a “third option”, as many companies continue to close their DB schemes in favour of a defined contribution scheme, where retirement income is not guaranteed.
Webb said the DB rulebook, which forces companies to adhere to strict funding requirements and contribute to the Pension Protection Fund, could be relaxed for defined aspiration schemes.
He said: “This type of pension could sit within a less burdensome regulatory regime and give businesses the freedom to offer the type of provision that works best for their employees.
“A defined aspiration pension could allow employers to offer a measure of security to their staff, but would have a degree of flexibility that would recognise when external factors – be it increases in longevity, or significant changes in market conditions – make a firm promise impossible to keep.”
Webb said defined aspiration pensions would give employees a “greater sense” of what they will get in retirement than DC schemes.