Following the demise of many final salary and defined benefit pension schemes the government is consulting on new types of work place pensions to provide guaranteed pensions for workers.
According to Steve Webb, Minister for Pensions, the government is to consult on a number of options and is looking for a solution which provides either a guaranteed pension pot or guaranteed income, where the risks of the scheme are shared more equally between employee and employer.
In an interview with the BBC Radio 4 program, Today, Mr Webb said: “Firms would like to offer their employees some sort of certainty but without all the costs and burden they already face.”
Final salary schemes closing
Many firms have closed their final salary or defined benefit pension schemes over the past few years; Shell was the latest employer to close their scheme to new employees.
The consultation by the government will be seen as the latest attempt to provide workers with some form of guaranteed income in retirement.
The current alternative to final salary and defined benefit schemes means that the final pension income is dependent on investment performance and Annuity rates, which have fallen considerably over the past few years due to increased longevity and lower gilt yields.
Ros Altman, Director General of Saga said: “The investment returns for defined contribution schemes haven’t worked.”
She continued: “The investment markets haven’t worked out in a way that many people who are saving for a pension thought they would, and we are now struggling to find some way of giving workers back a bit of certainty, while employers are saying ‘we don’t want those risks’.”
Business reaction
Despite Mr Webb saying that firms would like to offer “some sort of certainty” to employees there has been a muted reaction from business owners, who are clearly nervous about taking on future liabilities which will be hard to quantify.
Malcolm Small of the Institute of Directors said: “We are pretty clear that employers are going to be very nervous about anything that involves guarantees.”
Small continued: “It is going to be pretty unattractive to employers.”
Pension experts point out that Final Salary schemes died because employers did not want to take on the liabilities associated with them and this new “defined ambition” pension, as it has been dubbed by Mr Webb, seems as though it will suffer from similar issues.
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