Pensions Minister Steve Webb is to press ahead with plans to overhaul the private pensions market after a public consultation showed big support for the shake-up.
Legislation will now be brought forward to enable new, internationally-renowned models of pension scheme to be brought to the UK market, after responses showed a broad consensus of backing from business, trades unions and individuals.
The government first published its ambitious proposals to reinvigorate workplace pensions in November. The consultation, ‘Reshaping Workplace Pensions for future generations’, outlined ways to enable the risks associated with the outcome of future pension schemes to be shared – rather than, as is commonplace today, all the risk being shouldered by the individual worker paying in.
In its official response published today (26 June 2014), the Department for Work and Pensions outlines the feedback received for the proposals. New research has shown that more than a quarter of employers – 28% – may be interested in greater risk sharing with their employees. It also demonstrates a clear preference amongst individuals for greater certainty over their finances.
As such, the response document commits to enable these ‘Defined Ambition’ schemes to be developed, and a Bill will go before Parliament today. It is part of a package of radical reforms to encourage a flourishing private pensions market that has the flexibility to provide sustainable retirement incomes for millions of savers in the future.
Pensions Minister Steve Webb said:
This coalition government has already made fundamental reforms to the pensions landscape. These new proposals are all about encouraging a flourishing and diverse private pensions market by providing greater choice to employers and savers.
These reforms meet the needs and concerns of business while, at the same time, standing up for the interests of workers who are doing the right thing and saving for their retirement.
With the backing of consumers and industry, this Bill will bring about new and realistic pension scheme options for those employers who want to do right by their staff.
While the most generous, final salary pensions – known as Defined Benefit schemes – have been in decline for many years due to their high cost, the government recognises that many firms still want to offer good quality pensions that help attract the best staff to want to work for them.
Up to now, employers which have closed down their Defined Benefit schemes have often moved to a Defined Contribution scheme in which the entire investment risk falls on the saver.
The purpose of the new legislation will be to enable employers to develop shared risk – or Defined Ambition – schemes which offer more certain outcomes for their workers, while still keeping costs under control.
The new legislation – which goes before Parliament for the first time today – will also allow the development of new collective pension arrangements based on risk-pooling models. These have been run successfully in other countries including The Netherlands, Sweden and Denmark.
Many employers have expressed an interest in taking forward these new models of pension scheme, once it becomes legally possible. Last month a number of pensions experts and industry figures wrote to The Times newspaper calling for the government to make collective pensions a reality.
The group, led by David Pitt-Watson of the Royal Society of Arts, wrote:
We call on the government to… provide pension savers in the UK with a choice to have access to Collective Pensions, within a safe regulatory framework, such as that which exists in Holland. Such a policy would have the support of various employer and employee bodies in the UK and has political support from across the main political parties. It is time to stop British pension savers being the ‘poor man’ of Europe.
The response document also confirms that the government has decided not to pursue measures to allow reform of existing Defined Benefit schemes, after the consultation showed concern about the potential impact on current savers and pensioners, as well as a lack of interest from employers in such an option.
The response to the consultation concludes:
Our focus is on the changes that are likely to make a real difference in reshaping workplace pensions for future generations – to enable the market to evolve in a way that includes possibilities for offering more certainty and stability of outcomes than traditional Defined Contribution schemes.
The present government has already made fundamental reforms to the pensions landscape:
- the introduction of the New State Pension from 2016 will provide a simplified foundation upon which individuals can build their own private pension saving
- the success of automatic enrolment means already over 3 million more savers have joined workplace schemes, with another 7 million still to be enrolled
The new Private Pensions Bill is presented to Parliament for the first time today and will receive its First Reading in the House of Commons.
Read the full government response to the consultation Reshaping Workplace Pensions for Future Generations.
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