It claims the proposals will create more certainty for individuals, share investment risks more equally, and help employers to keep offering the best possible workplace pensions.
Pensions minister Steve Webb (pictured) said a new category of pensions, (Defined Ambition) would give employees some certainty about how much they will retire on, but be cheaper for employers to run than traditional final salary (Defined Benefit) schemes.
Over the past 15 years, firms have been closing final salary schemes as increased life expectancy, high inflation and poor investment performance have made it increasingly expensive for them to offer retired workers a guaranteed payout based on their earnings.
Under the proposed new law, employers would no longer be required to give pensioners annual inflation increases. In addition, they would not be expected to provide pensions for spouses after the former staff member has died.
Pension rights already earned would be secure, under the plans. The Government hopes that by giving bosses the flexibility to cut back future benefits, some of the remaining salary-linked schemes will survive and remain open to new employees.
The Government refers to the proposals as a whole as 'Defined Ambition' pensions. The proposed new types of pension are:
- Flexible Defined Benefit: A salary-linked scheme with fewer obligations for employers
- Guaranteed Defined Contribution: Workers build up a pension pot and the employer guarantees its future value
- Collective Defined Contribution: Employers band together to offer large-scale schemes which are cheaper to run but not linked to salary.
Webb said: "I want people to have the best pensions possible, where risks are shared between employers and their workers.
"We have looked at the best pension arrangements around the world and want to give British workers the chance to join such schemes. Our proposals for defined ambition pensions are designed to reinvigorate workplace pensions, providing people with more certainty about what they will get in retirement."
