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ABI warns defined ambition will be too costly


The Association of British Insurers will today warn pensions minister Steve Webb’s defined ambition proposals would be too expensive and too difficult to regulate, according to the Financial Times.

Webb set out defined ambition options in April last year in which the Government looks to encourage employers to take on a greater share of retirement risk.

The Government is looking at how employers can be spurred to offer “risk-sharing” pension arrangements which provide employees with increased certainty.

Models include “cash balance” arrangements, where the company guarantees to deliver a fixed pension pot at retirement, and allowing employers more flexibility over the date at which a pension is paid.

But in a document to be released today, the ABI will say any guarantees on pots that can be moved between employers are likely to cost more than they are worth.

The trade body will add defined ambition schemes’ similarities to with-profits funds will invite increased scrutiny from regulators.

It will say: “While such products have the benefit of apparent simplicity to the employee, they also face formidable obstacles.”


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. It is absolutely true that the introduction of guarantees or underpins increases complexity in regulating fairness of transfers and hence increases costs! Equally, the idea of moving small pots around is inefficient, in fact what’s also inefficient is people changing jobs frequently – it’s inefficient for the majority of employers!

    Our pension system (in particular the preservation legislation) used to discourage frequent job hopping. Maybe our system/rules should be focused to encourage more employer loyalty and less job hopping? If not, rather than “pot follows member” culture, maybe Steve Webb should look at “scheme follows member”, possibly with a pensions clearing house system to make it easier for a single employer to pay contributions to different schemes for different employees – this could even be driven through the NI number system where a pension policy (and provider) is associated to an individual’s NI number?

    If an employee moves job his “guarantee” would fall away and it reverts to a straight cash value on changing jobs?

  2. What we have here is government transferring earnings related retirement pensions, SERPS, S2P etc. to the private sector.

    If governments have decided it is too expensive and cumbersome to administer and deliver the promises why are they now trying to foist this on the private sector?

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