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.”