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Employers are willing to shoulder retirement risk, says Webb

Pensions minister Steve Webb insists there is demand from employers to take on retirement risk despite the continuing closure of private sector defined-benefit schemes.

The Government plans to explore ways to encourage employers to take on more pension risk as part of a consultation on reinvigorating occupational pension provision due to be published later this year.

Potential models for “defined-ambition” schemes include cash-balance arrangements, where the company guarantees to deliver a fixed pension pot at retirement, schemes that guarantee a certain level of benefit for employees within a target range and DB schemes with greater flexibility on the date the pension is paid out.

The move has been welcomed by some within the industry but the Confederation of British Industry says businesses are “scarred” by risk and nervous of offering pension guarantees.

In January, oil giant Shell became the latest FTSE 100 company to close its final-salary scheme to new members.

But speaking at TheCityUK pension conference in London last week, Lib Dem MP Webb (pictured) said employers have already shown an interest in establishing defined-ambition schemes. He said Wm Morrison Supermarkets, for example, has opted for a cash-balance arrangement for auto-enrolment rather than a pure defined-contribution scheme.

He says: “People sometimes say I am being naive. They say because firms have been scarred by the cost, uncertainty and volatility of DB they will not want anything to do with pension promises. But the reality is they are not. Morrisons has not gone for pure DC for auto-enrolment, it has gone for cash-balance.

“Employers I am talking to are interested in doing this, so it is the Government’s job to make it as easy as possible for them.”


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. It’s hard to credit this. The problems with DB schemes have been so overwhelming that I find it hard to believe employers are looking for ways to tie themselves into new guarantees when they could simply support the employees but leave the risk with them. It’s hard to see how they could square voluntarily putting new risk on the balance sheet with their duty to their shareholders.

  2. Steve Webb must be off his trolley suggesting this. DB schemes are an open chequebook and part of the cause of the UK’s financial demise.

    Look what a mess we are in from public sector pensions and he wants to give this to the private sector too? Unbelievable!

  3. I suppose it comes down to what is being promised under these ‘defined ambition’ plans. If very little is promised, the ‘cash balance’ scheme is of little practical value but allows both employers and more relevantly I sceptically suspect, politicians to claim that it is a great success.

    Here we see at first hand the apartheid that exists between those who have tax payer funded public sector scheme, trying to convince those that do not, that a continuation of the current position for some is fair.

    What would be fair is a nationally funded scheme that gives everyone the same scale of benefits. Utopia – probably but Webb is very mistaken if he really thinks that in the private sector, firms will take on liability without any tangible benefits. He needs to get out here and leave the cosy circles of Westminster to get a real feel!

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