19 October 2012

IPE: UK pensions minister proposes DB with no liability beyond employment

Defined benefit (DB) funds with no further obligations on an employer once a worker leaves, and a levy on defined contribution (DC) savings to allow for smoothing, were two of the ideas proposed by pensions minister Steve Webb as he shed light on his 'defined ambition' proposals.

Mr Webb said that enabling greater risk-sharing among UK pension funds though the introduction of defined ambition was not a distraction. The Liberal Democrat minister said there was "significant appetite" for risk-sharing in the pensions field, noting that a number of FTSE 350 companies had approached him for details of the scope of risk-sharing since he first floated the proposal.

Webb said the government's role would be to act as facilitator for this interest from employees and employers in risk-sharing. The MP said that one of the ideas likely to be included in the forthcoming consultation on defined ambition was for a "DB-lite" approach, whereby companies would no longer "be on the hook for people, who don't work for you anymore, for years to come". He said that the current scenario would often result in balance-sheet responsibility for employees up to 65 years after they had departed due to the benefits – including spousal pensions and inflation protection – that funds were obligated to offer.

He said the idea was attractive, as it would allow members to take a "big fat pot" – a phrase favoured by the minister in recent months to describe in layman's terms his ideas to consolidate savings into a single scheme – with them when they left a company, but also meant that the occupational fund was no longer exposed to inflation and other kinds of risks. Webb explained that the caveat of only offering DB until an employee left would remove the regulatory risk involved in future governments introducing new regulations.

Full article (IPE subscription required)

© IPE International Publishers Ltd.