Commenting on today’s government response to the consultation on reshaping workplace pensions.
It’s good to see the speed of progress being made with the Private Pensions Act, which is being presented to Parliament for the first time today.
This new legislation will enable employers to develop shared risk schemes for the first time. It’s interesting to see that despite the negative response by many regarding shared risk schemes, the official response to the government’s consultation has shown that more than a quarter of employers may be interested in greater risk sharing as well as a clear preference from individuals for greater certainty over their finances.
The legislation will also allow the development of new collective pension arrangements based on risk-pooling models, which can potentially offer more certainty and stability of pension outcomes than traditional defined contribution schemes. We expect the outcome will be a range of risk-pooling models, varying from simple arrangements designed just to pool ongoing management costs and/or investment strategy, all the way up to more complex Dutch-style target-benefit arrangements.
Some employers may decide that their existing defined contribution schemes are perfectly adequate for their needs and those of their employees, but this legislation will give those who feel that defined contribution is the 'wrong tool for the job' the opportunity to put something more appropriate in place should they decide to do so.