Encouraging more risk-sharing in pensions and ensuring the regulatory regime delivers well-run, customer-focused schemes are the top priorities in the governments plans for reinvigorating workplace pensions, which have been published today.
In a written ministerial statement, pensions minister Steve Webb said the strategy would result in the provision of 'high quality' pensions that people can 'trust and take confidence in'.
'We need pensions that are affordable for employers and attractive to employees to ensure that automatic enrolment succeeds for the millions of new savers it creates,' he said.
'Our reinvigoration strategy covers a broad set of issues from how we increase the amount people are saving to how we ensure those savings go into high quality schemes that give people the income they expect in retirement.'
To give savers more certainty in pensions, the government will be encouraging the development of defined ambition pensions. The minister has previously outlined how this would aim to fill the middle ground between defined contribution and defined benefit pensions by sharing the risk involved in pension saving between employers and saver.
The strategy explains that 'while risk-sharing is currently possible and occurs to a limited extent within the current pension market, we are keen to examine whether we can encourage greater take-up of these options, or enable greater innovation in this space by amending legislation'.
'There may be a number of different types of defined ambition schemes. Some may have elements of current DB schemes, but with greater sharing of risk; others may start from a DC standpoint, but with increased certainty for members,' it adds.
Webb said the Department for Work and Pensions would be 'working closely' with the pensions industry to encourage innovation and explore possible options and models.
To address the 'critical' issue of scheme quality, the strategy also sets out the government's plans to address issues such as pension scheme charges and the regulatory regime.
'Savers need to be confident they are putting their money into stable, well-run, customer-focused schemes that will give them the income they expect in retirement.'
Webb explained that the government would also look at ways to make pensions less confusing by improving information for employers and workers. As part of this it was 'considering putting in place simple mechanisms to support employers and consumers with scheme choice', he added.
Andrew Vaughan, chair of the Association of Consulting Actuaries, welcomed the publication of the paper and called for a 'can do' approach to designing pensions for the future.
Vaughan, who chairs the industry working group set up by DWP to explore options for defined ambition pensions, explained that the approach would only succeed if there were a range of options available to employers.
'The most important attributes of defined ambition pension designs are that they should include greater certainty for members than a pure DC scheme and less volatility for employers than current DB schemes,' he said.
'Importantly, sufficient flexibility needs to be built into the designs, so costs can be controlled long into the future to cope with changes in economic circumstances and demography.
'Our working group envisages that there will be a range of DA designs - no single approach - so employers can select schemes that suit their business and their employees' best,' he added.