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Pensions minister sets out ‘defined ambition’ options

Pensions minister Steve Webb has set out possible options for “defined ambition” provision as the Government looks to encourage employers to taken on a greater share of retirement risk.

In an article in the Sunday Telegraph, Webb (pictured) says the Government is preparing to investigate how employers can be spurred to offer “risk-sharing” pension arrangements which provide employees with increased certainty.

He says models 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.

However, it remains unclear what the Government will do to make these schemes more attractive to firms.

Webb says: “The Government is looking to investigate options for a new model — the defined ambition pension — where the risks and uncertainties are more evenly shared between employer and employee.

“One example is the so-called cash balance scheme, where the firm guarantees to deliver a fixed pension pot on retirement and the employee then bears the uncertainty as to how much pension that pot of money will buy.

“Another model is to share some of the uncertainties of rising life expectancies, so that firms pay a guaranteed pension but the date on which that pension is paid can change for future accruals if people live longer than expected.

“Or there could be new models where younger workers are told that their pension could lie somewhere within a wide range but as they get older they are given more and more certainty about what their final pension will be.

“I will be looking at models found in other European countries where elements of risk-sharing are a more central feature of pension provision.”



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There are 9 comments at the moment, we would love to hear your opinion too.

  1. David Trenner - Intelligent Pensions 10th April 2012 at 8:59 am

    Defined ambition – a term that politicians understand well, although to them it just means saying things that will get then re-elected!

  2. Talk about making it up as you go along ! There is already a low cost pension delivery system in place, it’s called National Insurance. The politicans simpley haven’t got the nuts to tell the public the truth about how much pensions cost.

  3. More money is now being put into ISA’s than pensions i.e. the people have voted with their cash.

    Pensions in the private sector are effectively dead.

  4. The sad thing is that I don’t believe Steve Webb is a ruthless cynic, just giving out hot air for political reasons. I am sure he genuinely wants to improve the woeful performance of UK workplace pensions. He should therefore speak to companies like mine that deliver workplace pensions and understand the drivers most employers operate under. Accepting more risk and liability and increased costs will not be on the table for very many at all. So this won’t amount to anything in the real world. Steve really needs to spend some time learning about his subject, it is horribly complicated when it comes to changing employer and employee behaviour.

  5. Paul Standerwick 10th April 2012 at 12:10 pm

    Absolute nonsense.

    The government should concentrate on encouraging people to save and take responsibility for themselves, not constantly removing incentives and negatively affecting investor confidence in what they will do next.

    DB schemes are finished in the private sector and should be in the public sector too.

  6. Generally speaking, the biggest mistake that most private sector workers have made over the past few decades has been … working in the private sector.

    Their public sector counterparts can now look forward to pensions that are only dream in the most of the private sector.

    Pensions apartheid is alive and unwell in England.

  7. To paraphrase the much loved (sic) Hector Sants, “Private sectors workers, be afraid, very afraid” (of an impoverished old age).

  8. DA = Defined Ambition (variable risk)
    DB = Defined Benefit (no risk)
    DC = Defined Contribution (high risk)

    No prizes for guessing which category MP’s and the rest of the public sector are in.

  9. I really like 2.50’s post!
    Where SB _ those on state benefits
    We could change that to a formula
    DC = DC own contribitions – (DB plus SB)
    DA = No chance of their DA being = to DB + SB

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