The Department for Work and Pensions today set out its thinking on the move towards defined ambition pensions to complement the traditional defined benefit and defined contribution structures that dominate the market.
It is hoped this new concept of DA pensions will create greater certainty for members about their retirement income as well as less cost volatility for employers.
A DWP consultation issued today sets out three possible ways forward: flexible DB; risk sharing and risk pooling; or collective DC.
Pensions minister Steve Webb said: 'I want people to have the best pensions possible, where risks are shared between employers and their workers. Final salary pensions have been in long-term decline and if we do not act it could disappear altogether. We want to help the best employers offer good alternatives including new forms of salary-linked pensions.
'We have looked at the best pension arrangements around the world and want to give British workers the chance to join such schemes. Our proposals for defined ambition pensions are designed to reinvigorate workplace pensions, providing people with more certainty about what they will get in retirement.'
Andrew Vaughan, who chairs the defined ambition industry working group as well as the Association of Consulting Actuaries, said the proposals addressed an unfinished agenda and provided a way forward towards both reshaping and reinvigorating workplace pensions.
He added: 'They offer a range of new options that will be attractive to different employers and their employees - all part of a new framework that looks beyond the current regulatory extremes of final salary and money purchase.'
Nick Salter president elect of the Institute and Faculty of Actuaries, said the work undertaken by the DWP on defined ambition was a step towards offering a lot of fresh thinking for the pensions industry.
'There are clearly considerable challenges ahead and working with the DWP and the rest of the pensions industry actuaries have an important role to play in helping to identify how to overcome them,' he said.
Joanne Segars chief executive of National Association of Pension Funds, agreed that the DA proposals was a good step but said they would not be for everyone.
'Millions of people are going to be automatically put into a defined contribution pension, many for the first time,' she said.
'We must not get distracted from the task of getting good value for money out of this pension model. We have to step up efforts to improve transparency around charges and explore the benefits of economies of scale.'
Stefan Lundbergh, head of innovation at investment advisers Cardano said it was important that any good collective solution treated all individuals fairly and strong supervision is a necessary condition for that.
'There is no single perfect solution, but the consultation shows that there are models that work We are hopeful that the pension problem in the UK can be addressed in an adequate way with defined ambition solutions.'
The consultation closes on December 19 2013.