Webb: we will enable risk-sharing to meet members' certainty demand

The 2014 Pensions Act provides a clear and simple foundation for retirement saving. 

The latest figures show 3.3m workers have been auto-enrolled. We are also legislating to make sure these workers are in schemes that have low charges and are well governed.

We have also been looking to the longer-term shape of the pensions landscape. Traditional defined benefit pension coverage has continued to decline, with the balance shifting decisively towards defined contribution, particularly for those joining the labour market.

So how can we get the best possible DC outcomes, particularly for those who work for larger employers willing to do more than the bare legal minimum?

One of the biggest challenges for scheme members in a DC world is the transfer of risk from employers to members.

No longer will the firm bear the risk of increasing longevity, of poor investment returns or of post-retirement inflation. Instead, the individual faces uncertainty both about the value of their final pension pot and about the retirement income this will generate.

We believe it is in risk-sharing and risk-pooling that employers can do most to add quality to workplace pension provision.

Instead of pure DB or DC pensions we therefore propose to implement a defined ambition framework where risk-sharing models of workplace pension provision are enabled.

Some of these models would simply not be possible under existing legislation, while for others the existing regulatory regime would be unclear and possibly unnecessarily burdensome.

We plan to enable collective forms of DC pension provision which are common across Europe but difficult if not impossible in the UK context. These risk-pooling schemes tend to produce less volatile and more predictable outcomes for scheme members.

We also plan to provide a clear legislative framework for risk-sharing models, where investment and longevity risks can be shared between a number of parties including employers, individuals and insurers.

These would provide individuals greater certainty as to the value of the pension pot they were accruing as they went through their working life.

Steve Webb is the UK pensions minister