Government to explore new workplace pension options

The Government is to explore new types of workplace pension schemes in order to give firms and employees more certainty about the amount of income they can expect to pay out or receive, says minister for pensions Steve Webb.

In an article written by the Liberal Democrat MP for The Telegraph, one option being investigated is a 'defined ambition plan' where 'the risks and uncertainties' of existing schemes are 'more evenly shared between employer and employee.'

European models and other 'cash-balance' schemes already in place by major retailers, which offer a fixed pension pot on retirement but then require investment by employees, will also be looked at.

Speaking to the BBC Radio 4 Today programme, Steve Webb said: "Firms would like to offer their employees some sort of certainty but without all the costs and burden they already face."

The comments come after the number of final- salary pension schemes - popular with employees as they offer a guaranteed level of retirement income that is linked to inflation - have fallen significantly in recent years.

Firms have struggled to meet the costs of the scheme due in part to rising life expectancy, with many ending the scheme or closing it completely even for existing employees.

A recent report by the Department for Work and Pensions found that final salary pension scheme pay-outs will peak and reach a record high this year, averaging at £7,100 a year, but will fall significantly to just above £2,400 a year by 2006 - marking what the government called a 'significant shift in pension saving.'

Defined-contribution schemes, where members pay into a pension fund, have become a popular alternative, although regarded as offering poorer returns and greater uncertainty as they rely on financial market performance.

Some business groups are sceptical of the proposed ideas, with Malcolm Small of the Institute of Directors (IOD) saying: "We are pretty clear that employers are going to be very nervous about anything that involves guarantees."

"It is going to be pretty unattractive to employers."