Providing guaranteed retirement income from a defined contribution pension could work, according to the Institute and Faculty of Actuaries.
In a paper published yesterday, the Profession said that offering a full 'money back' guarantee to workers so they receive back at least the amount they have saved for their pension might not be practical.
But Is there a place in the UK Defined Contribution pensions market for a guaranteed savings product? concluded that it could be 'attractive and affordable' to provide a guaranteed product that protects pension pots build up by people nearing retirement.
The idea of a middle way between defined contribution and defined benefit pension provision, where the employer and employee share pension risk, has been dubbed ‘defined ambition’ by pensions minister Steve Webb.
The concept has been criticised in some quarters, with suggestions that providing a guarantee would be prohibitive - either in terms of the increasing the charges involved in pension provision or reducing the investment returns on a pension pot.
However, Scott Eason, one of the authors of the Profession's paper, said there were ways to provide some form of pension guarantee.
'A number of investment techniques already exist in the UK pensions market that with the right engineering would be suitable for this purpose, including life-styling and volatility targeting,' he explained.
'However there are also a number of challenges to using techniques like these, not least the effective and clear communication of a complex product that delivers to a simple ambition, namely to save for retirement whilst guaranteeing not to lose capital and without sacrificing potential for capital growth.'
Eason noted that the value of the pension would depend on the impact of charges on expected returns and the amount of risk - and therefore potential investment returns - being removed.
'We conclude that a full "money-back" guarantee may not be practical but that a guaranteed product to protect a built-up pension pot as individuals near retirement could be an attractive and affordable option.
'The next challenge is to create a model for this product and look at the education and communication that would be needed to support it.'
The pensions minister welcomed the Profession's paper and said more details on what defined ambition pensions could involve would be published later this year.
'Developing products like a "money-back guarantee", where at the very least a pension fund returns the value of contributions, is one way of ensuring risk does not lie solely with the individual,' Webb said.
'I have challenged the pensions industry to create new models of defined ambition pensions and this work is very encouraging. We will be publishing more ideas on reinvigorating workplace pensions later this autumn.'
