The Government is considering creating a levy-financed lifeboat fund to provide a form of guarantee for members of defined-contribution pension schemes.
In July, pensions minister Steve Webb urged providers to develop pension products with “affordable” guarantees as part of Government attempts to boost occupational saving.
Speaking at an Institute and Faculty of Actuaries event in London this week, Webb (pictured) acknowledged insurers may be reluctant to offer these products because they would be forced to hold extra capital to support the guarantee.
He said: “We are looking at ways to underpin the DC guarantee without requiring providers to hold massive amounts of extra capital.
“We already have the PPF for defined-benefit schemes, but could you have a protection fund for defined-contribution tail risk which might not be subject to the solvency requirements the industry faces? That is an idea we are exploring at the moment.”
DWP sources say if the Government goes forward with the proposal the set-up costs would likely need to be met by the industry rather than the state.
It remains unclear whether employers or pension providers would be required to pay the levy for the scheme.
Hargreaves Lansdown head of pensions research Tom McPhail says: “It would be great if this can be made to happen but I am sceptical as to whether this is actually achievable. The industry’s track record in delivering guarantees to savers has not been good. The cost of the guarantees is still likely to add a substantial amount to the cost of the product.”