With defined benefit (final salary) pension schemes becoming increasingly rare in the private sector, the government is considering new ways for employees and employers to share the risk of providing pension benefits.
Amongst several options being considered is a ‘defined ambition’ pension.
This would see the employer providing a defined pension fund at retirement, which would then be used to provide an income in later life.
With this type of scheme, the employer makes up any shortfall in the size of the pension fund if investment growth during the life of the plan has fallen short of expectations.
Whilst this sort of ‘middle way’ pension scheme is likely to be more attractive than defined contribution pensions, where the employee has all of the risk of investment growth, employers are still unlikely to embrace such schemes widely.
What we believe is needed to provide better pension provision in the private sector is advice.
Employers should ensure their staff engage on a one to one basis with professional advisers to design a financial plan which incorporates saving for retirement.
As things stand, too many employers provide only generic advice to pension scheme members, with varying levels of engagement.
With continually improving life expectancy and later retirement ages, this pensions debate is unlikely to go away any time soon.
Photo credit: flickr/nickatkins
