Pensions minister Steve Webb has unveiled plans for a new workplace pension model which would mean the risks and uncertainties in pension schemes are more evenly shared between employer and employee.
Writing in The Daily Telegraph yesterday, Mr Webb said the 'defined ambition' approach would address issues with defined contribution schemes where pension provision can 'swing from one extreme to another'.
'There is no doubt that for individual employees a measure of certainty in their future pension would be very welcome,' he wrote. 'And I also believe that firms which want to offer high quality pensions to their workers would be interested in helping their employees to cushion some of the uncertainty about pensions.'
Among the options mooted by Mr Webb are a 'cash balance' scheme, where the employer guarantees to deliver a fixed pension pot on retirement and the employee then bears the uncertainty as to how much pension that pot will buy.
Other models could share some of the uncertainties of rising life expectancy by pension pay outs changing for future accruals if people live longer than expected, or involve younger workers being given a range of final pension payouts which become more certain as they get older.
Mr Webb said he would look at European models which already involve risk-sharing and said UK firms had indicated they would be interested in the approach if they had 'greater encouragement' to take on risk.
'If we can get the framework right, we can make sure that final salary schemes are replaced by a model which offers greater flexibility to firms without loading all of the uncertainty on employees,' he wrote.
