Government outlines plans for “defined ambition” pensions
Yesterday the government announced plans for further reforms of workplace pensions for future generations, with a new category of pension scheme taking centre stage.
The new category of pensions being proposed, defined ambition schemes, would share investment risks between employer and employee. This would therefore give the employee more certainty about how much they will retire on, allowing employers to keep offering the best possible workplace pensions.
Recent years have seen a decrease in defined benefit (or final salary) pension schemes being offered by companies, with the percentage of open schemes dropping from 36% in 2007 to just 14% today.
The proposal for defined ambition pension schemes included in the government’s consultation included:
- 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
The pensions industry as we know it is undergoing major changes, including the introduction of auto enrolment. If you haven’t started preparing for auto enrolment yet, why not download our free introductory guide and find out what you need to do and when you need to do it.