Actuaries are urging employers to consider alternative defined benefit pension scheme designs that allow employees and employers to share investment risks.
The Faculty and Institute of Actuaries says pension schemes can be designed that allow companies to bear some or all of the investment risk up to retirement, but pass the risk to employees at retirement. This is done by expressing the benefit as a defined lump sum, rather than a defined pension, at retirement. Part of the lump sum can be taken as tax free cash, and the rest used to buy an annuity on the open market. It says this bridges the gap between one party or the other shouldering all the risks.