The Government is today publishing a paper that sets out its strategy to ‘reinvigorate’ workplace pensions by ensuring auto-enrolment schemes are high quality and further develops plans for defined ambition schemes.
Writing in The Telegraph, pensions minister Steve Webb says auto-enrolment schemes must offer good value to employees.
He says: “This includes features such as value-for-money on charges, good governance and making sure that people who make no active choices about how their money is invested are properly catered for. One option would be for pension schemes to be given ‘star ratings’ so that employers knew they were choosing a quality scheme and employees valued that provision.”
In April, Webb set out his vision for defined ambition occupational schemes, which would see employers offer risk-sharing pension arrangements which provide employees with increased certainty.
He said models could 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.
Webb says today’s paper will give more detail about what defined ambition pensions could look like.
He says: “One option is slimmed-down DB. For example, the future pension promise could be limited to a cash figure at retirement with any inflation-protection post-retirement conditional on the investment performance of the fund. Alternatively, the pension promise could last only as long as you work for your current employer. When you leave, it crystallises into a cash value which you can take to a new pension scheme. This approach would be valued by firms who do not want to retain pension obligations for workers who have left them many decades earlier.
“Another option is enhanced DC. This could mean adding some form of ‘smoothing’ so that the pension outcome is much less uncertain than under pure DC. There is, of course, a cost to greater certainty. But our evidence is that people of all ages and all income levels value greater certainty about their retirement income.”