A version of defined benefit pensions could still have a place in the retirement saving market but the industry only has 12 months to save the model, pensions minister Steve Webb has said.
At a seminar run by The Pensions-Net-Work, hosted by Legal & General, Mr Webb believes that there is a place in the market for a “slimmed down” version of DB pensions, which are under threat as employers drastically scale back their offering due to high costs and spiralling liabilities.
He said: “We have probably got 12 months to save DB. Now it might be a bit like when you watch Casualty and there is no point having to apply electrodes to the corpse as it’s already dead, but there is just a possibility that there is a version of DB that could still spring to life and surprise a few people.”
Mr Webb highlighted that there may be employers out there who have clung on to something that looks ‘DB-ish’ and they would stay in that space if there was a “very slimmed down version” of DB and which offered some similar benefits.
Mr Webb is keen on replacing DB pensions with ‘defined ambition’ schemes, which would sit in the middle between DC and DB pensions, meaning that the employer and employee would share an equal amount of pension risk.
Although ‘defined ambition’ may be good in principle, the Pensions and Work Committee said last month that there were still too many risks involved for employers in such schemes and that this would limit their appeal.
Mr Webb said that in the summer the government will be publishing a paper on its “evolving DA thinking” and it wants to set out a framework where people “can operate without over prescribing”.
Mr Webb said: “Now how ‘defined ambition’ works is looking at ‘DB light’ and ‘DC plus’. But it strikes me that the window that we have got on ‘DB light’, especially having brought ‘contracting out’ ending forward to 2016, is now.
“So over the next few weeks I will step up the programme of conversations that I have been having with Britain’s boardrooms to say if we could deliver pretty quickly a core DB model would that keep you in the game, or should we just pull this and say it was nice while it lasted but let’s just make DC work?
“Just a bit of me wants to cling on to the possibility that employers out there that are willing to offer some sort of [defined benefit] and that we ought to give it one more go - and that is very much the focus of our initial intention.”