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.”