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DWP lifts lid on defined ambition pension plans

by William Robins on Nov 22, 2012 at 14:57

DWP lifts lid on defined ambition pension plans

The Department for Work and Pensions (DWP) has proposed a series of reforms for workplace pensions including a possible new structure for defined ambition (DA) schemes.

DA pensions would be a half-way point between defined benefit (DB) and defined contribution (DC).

DB has become too costly for most employers, some struggling under spiralling pension fund liabilities, while DC schemes have been criticised for putting too much investment risk on the individual member.

In a consultation paper, Reinvigorating workplace pensions, pensions minister Steve Webb (pictured) sets-out two vision for  DA schemes: ‘slim lined’ DB, and DC with added guarantees.  

To create a defined ambition pension by relaxing DB rules, the DWP proposed:

  • A core guaranteed benefit with additional benefits, such as inflation indexation, conditional in investment performance
  • Removing spousal benefits
  • Converting the value of a member’s DB pension in to a DC cash sum when the member leaves, retires or dies
  • A ‘fluctuating’ pension where most of the retirement benefit  comes under a lighter funding regime
  • Linking retirement age to state pension age increases

The DWP also sets out a different set of proposals, approaching DA from a DC starting point. All considered using a guarantee underpin offered by employers or insurers or possibly by a Pension Protection Fund-style protection fund and paid for by a levy on members’ funds.

The proposed guarantees include:

  • A ‘money back’ guarantee to get back contributions
  • A guarantee covering later years of retirement, based on a fund levy
  • Guaranteed level of fund growth bought from insurers
  • A retirement income guarantee bought near retirement using part of the pension pot

4 comments so far. Why not have your say?


Nov 22, 2012 at 16:02

So what Mr Webb is proposing is a DC scheme with the assurance (or insurance?) from a life company of a minimum level of growth each year, a minimum level of income at retirement and the potential for growth over and above based on investment performance.

Moreover, they'll call it a "defined ambition" scheme, which is a half-way point between defined benefit (DB) and defined contribution (DC) ... in other words, it's a "third-way" of doing things.

Feeling chuffed to bits that I've been offering this solution to my clients FOR THE PAST 3 YEARS!!!


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Nov 22, 2012 at 16:53

Mmmm. Another day.....another thought. The madness goes on. So now we have DB and DC. They're now thinking of DA which only leaves another 23 "proposals".

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Arthur Schopenhauer

Nov 22, 2012 at 22:08

Is this more of the failed ambition scheme like Graduated Pensions, SERPs, 2nd Tier, what is National Insurance for?? apart from to disguise the true rate of income tax

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Nov 25, 2012 at 09:48

DD. Defined Death. The pension scheme pays until a specified age like 90 and the state pension takes over. Defined Earnings. All pensioners have to earn at least £x to be entitled to state benefits. At the very least they have to sell lottery tickets at street corners. A new style means test. DF...

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