Proposals to shake up workplace pensions
The government has published a consultation paper putting forward a whole range of ideas for revamping workplace pensions.
At the moment, schemes fall broadly into two types.
The first type is defined benefit (DB) schemes, where the pension at retirement depends on a member's salary and their length of service.
The second type is defined contribution (DC) schemes, where the pension at retirement depends on how much is paid in, how the investments have performed and the annuity factors being used when it is time to turn the pot of money into a pension.
The government is thinking about new types of pension. 'Defined ambition' pensions could provide greater certainty for individuals but share investment risk equally between employers and employees. A consultation paper describes the options that could be used.
One option is to create a new type of defined benefit scheme (DB lite) which is similar to a DB scheme, except with more flexibility in the rules so that the scheme could, for example, not pay increases to pensions in payment, or could transfer out a member's pension to a DC scheme if they left the company. This would make the scheme cheaper for the employer to run while also giving members some certainty
Another option is to create a new type of DC scheme (DC plus) adding a guarantee to a DC scheme, so, for example, the money a member gets back will never be less than they have put in.
There are many varied proposals, and once the consultation has closed, the government will then consider which, if any, ideas should be taken forward.
Read more about scheme types on our website here.
Read the consultation paper here.
If you have questions about any aspect of pension saving, please contact us using one of the following methods.