Government sets out plans to reshape workplace pensions
The government is setting out a range of proposals to reshape workplace pensions for future generations.
The Department for Work and Pensions (DWP) says these are designed to create more certainty for individuals, share investment risks more equally, and help employers to keep offering the best possible workplace pensions.
The proposals follow the government's commitment in the coalition agreement to reinvigorate private pensions.
Defined benefit (DB) schemes have declined rapidly in recent years, according to the Government. The percentage of open schemes has more than halved since 2007 – from 36% to 14% – leaving just 841 schemes remaining open today.
The DWP says it has worked closely with employers and the pension industry over the last year 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.
"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, Chair of the Industry Working Group, said:
"The proposals contained within the consultation paper provide a way forward towards both reshaping and reinvigorating workplace pensions. 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.
"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 parties, which could include employers, members, and 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
