'Defined ambition' plan would encourage fewer and larger pension plans
Pensions minister Steve Webb said he wants to bridge the gap between the two traditional forms of pensions — defined benefit (DB), which promises employees a pension based on their salaries, and defined contribution (DC), which offers no guarantee about how much the pension will finally pay out.
DB has become too costly for most employers, which are struggling to plug deficits and spiralling pension fund liabilities, while DC schemes have been criticised for putting too much investment risk on the individual members.
Known as "defined ambition," the scheme will encourage fewer and larger pension plans, and will share risks equally between employers and employees, Webb said in a paper called Reinvigorating Workplace Pensions.
The scheme will offer workers some guarantees from their employers on the size of their pension pot and the rough size of their retirement pay packet.
The government is concerned Britain's ageing population needs to do more to provide for itself in later life. The number of active members of occupational schemes has declined from a peak of 12.2 million in 1967, to 8.2 million in 2011.
"For nearly half a century, we have seen declining numbers of people in workplace schemes — I am determined to reverse this trend and ensure we have pensions that are affordable to employers and attractive to employees," Webb said.
His concern is shared in Europe. The EU's pensions and insurance watchdog wants to set Europe-wide standards for national old-age pension schemes in a bid to boost investment in private pensions.
