‘Defined ambition’ to appeal as DB replacement – PPI
Pensions thinktank says third-way pension would appeal to employers previously offering defined benefit schemes
‘Defined ambition’ pensions could be a fairer way to offer pension provision in the future, according to a pensions expert.
Speaking at the launch of ‘The changing landscape of pension schemes in the private sector in the UK’ – the Pension Policy Institute (PPI) report on private pension schemes – research director Chris Curry argued employers would be willing to take on some risk from employee defined contribution (DC) pensions.
Defined ambition pensions were mooted by Steve Webb earlier this year. The concept suggests a halfway house between defined benefit (DB) and DC pensions, with the employer shouldering some of the risk of pension provision by providing a guarantee linked to a DC-style scheme.
This would reduce the saver’s risk, but causes the employee lower risk than the ongoing liabilities of a DB scheme.
“There are employers who have no link at all to pensions,” Curry said. “I don’t think defined ambition is going to be aimed at those kinds of people. They don’t want any risk.”
But there are still DB schemes out there open to new members – 16% of those in existence, according to the PPI report – which Curry said demonstrates employers are still interested in looking after their employees’ interests.
“There are some employers out there who are keen on shouldering some of that risk [of securing a retirement income] and protect their employees,” Curry said. “If you target it at the right employers and give them the right options, I think there will be some interest there.”
While defined ambition is not officially on the government agenda at present, Curry argued that there was time to roll out a third way structure for pensions while auto-enrolment is being implemented. “But it would be difficult and challenging to do it within the timescale we are talking about,” he said.
Wayne Daniel, chief executive at MetLife, which sponsored the PPI report, suggested that clauses could be added to DC schemes to create a defined ambition scheme.
“Maybe the way it would work is existing DC schemes starting to add guarantees, for example, you are guaranteed to get out at least what you put in,” he said.