The government has set out a range of proposals to reshape workplace pensions.
The proposals are designed to create more certainty for individuals, share investment risks more equally, and help employers to keep offering the best possible workplace pensions.
Defined benefit (DB) schemes have declined rapidly in recent years. The percentage of open schemes has more than halved since 2007 – from 36% to 14% – leaving just 841 schemes remaining open today.
Over the last year the Department for Work and Pensions has worked closely with employers and the pension industry to explore options for creating new defined ambition pensions, where risk is shared between firms and workers.
These include creating a new legal framework to allow employers to continue to offer salary-related pensions instead of closing their DB schemes; and enable defined contribution pensions that give savers a more certain outcome in retirement.
Minister for Pensions 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.’
The shape of things to come
The consultation ‘Reshaping workplace pensions for future generations’ contains proposals for defined ambition pensions including:
- Creating a new pensions regulatory framework that would allow for greater risk sharing between employers, members, insurers and investment managers.
- Removing regulatory barriers to allow for a new flexible form of defined benefit pensions that will enable employers to continue to offer pensions to members with a high level of certainty, but with much greater flexibility over the nature of benefits provided – these flexibilities will apply to future accruals only within existing DB schemes.
- Enabling the development of new forms of defined contribution schemes that could provide more certainty for members about their pot or pension income while they are still saving, without adding to employer liabilities.
- Enabling new models of collective defined contribution schemes that could provide for risk sharing between members, increasing the stability of pension incomes.