In response to today's proposals by Government to 'reshape workplace pensions', Hugh Nolan, Executive Director, JLT Employee Benefits, said:
"As identified by the Pensions Commission, there is a 'major shift of risk [from employers and the State to individuals] occurring as many people move from DB to DC provision'.
"In the private sector, only around 8 per cent of workers still have a defined benefit (DB) pension. For everyone else, the pension risks – longevity, investment and inflation – are being transferred to individuals who may not be best placed to manage and diversify those risks.
"So, we believe that there is a social interest in exploring 'Defined Ambition' (DA) options and our own research indicates that there is some appetite amongst employers to take back a certain amount of risk. The same research, however, suggests that some of the scheme designs currently being explored, based on international experience, will not prove popular with employers. (See graphs below)
"In short, alternatives to conventional pension scheme designs are worth exploring. However, we believe that the priority for Government, industry and employers should continue to be 'getting DC right' and encouraging contributions above minimum levels to ensure decent outcomes for as many people as possible.
"Notwithstanding our in principle support for exploring alternatives to traditional DB and conventional DC, in our discussions with clients, we also highlight the 'political risks' of adopting any form of defined ambition scheme design. The impact of layer upon layer of regulation on private sector final salary is well known and it is imperative therefore that this is cross-party support for any regulation-light framework in respect of DA.
"For many employers, it will be a case of 'once bitten twice shy' and for these organisations sufficient assurance will be needed for them to engage with the DA proposals."
Click on the graphs below to expand them.
Which of the following statements define the level of risk employers should carry?
Which of the following do you consider to be an appropriate way for employers to share pension risks with employees?