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DWP sets out plans to overhaul workplace pensions

DWP sets out plans to overhaul workplace pensions

The government has proposed giving auto-enrolment pension schemes star ratings, to help employers pick the right scheme, and give employees and good deal.

The star system is one a of a series of plans outlined by the Department for Work and Pensions in a new paper aimed at overhauling the workplace pensions market called Reinvigorating Workplace Pensions.

The paper also proposes defined ambition (DA) pension schemes, a combination of defined benefit (DB) and defined contribution (DC) schemes.

Previously pushed by pensions minister Steve Webb (pictured) these schemes aim to give savers some guarantees about the size of their pot, but without the cost and risk for employers.

The government has proposed savers pay a levy in exchange for a guaranteed fixed income on retirement. The levy will lead to higher monthly contributions from workers but will give them a minimum income when they retire, even if the stock market falls, according to the Daily Telegraph.

Webb has not given up on DB schemes altogether though and has put forward the idea of ‘slimmed-down DB’, ‘where the future pension promise could be limited to a cash figure at retirement with any inflation-protection post-retirement conditional on the investment performance of the fund’.

Writing in the Telegraph, Webb said: ‘Alternatively, the pension promise could last only as long as you work for your current employer. When you leave, it crystallises into a cash value which you can take to a new pension scheme. This approach would be valued by firms who do not want to retain pension obligations for workers who have left them many decades earlier.’

He added: ‘Another option is enhanced DC. This could mean adding some form of ‘smoothing’ so that the pension outcome is much less uncertain than under pure DC. There is, of course, a cost to greater certainty. But our evidence is that people of all ages and all income levels value greater certainty about their retirement income.’

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