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Political whims stopping employers taking on risk

Experts have warned the Government that concerns over future political intervention could undermine attempts to encourage employers to take on more pension risk.

Earlier this month, pensions minister Steve Webb outlined possible options for so-called “defined-ambition” provision.

He said models could include encouraging firms to offer “cash balance” arrangements, where the company guarantees to deliver a fixed pension pot at retirement.

Alternatively, Webb says employers could guarantee a certain level of benefit to younger workers within a target range.

A third option would see employers given more flexibility over the date at which a pension is paid.

Mercer head of regulation Dr Deborah Cooper says: “Although the current regulatory environment is a mess, in principle, there is nothing that stops companies from setting up a variety of different types of risk-sharing schemes. What stops them is that they never know what the Government is going to do next and what additional costs they will have to bear. For defined-ambition arrangements to take off, employers need reassurance that the contract made between employer and employee would be sheltered from the whims of politicians.”

Association of British Insurers director of life, savings and protection Stephen Gay says: “It is good that we have a pensions minister willing to look at radical ideas like this.

“There are barriers to employers establishing these schemes at the moment and one of those barriers is a lack of stability in pension rules.”

Hargreaves Lansdown head of pensions research Tom McPhail says: “Structural tinkering of this kind will not fix the retirement shortfall. Rather than promoting defined-ambition or claiming that lower charges will fix the problem, policymakers should focus on the more important message that if you do not pay enough in, you will not get enough out.”


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