As mentioned above, the Government has, for some time, been exploring the possibility of introducing a framework for a new kind of pension provision in the UK, which involves less cost and risk for the employer than a defined benefit scheme, but more security for employees than a defined contribution scheme. Following a period of consultation on possible models for this, the Government has now published its response to that consultation, and the Pension Schemes Bill which, in brief terms:

  • focuses on three types of pension arrangement – the defined benefits scheme (where a benefit of a defined amount is provided to the member from a fixed retirement age); a defined contributions scheme (where there is no pension promise in relation to the retirement benefits to be provided) and a shared risk scheme (otherwise known as defined ambition, where there are some promises in relation to pension benefits to be provided but it is not a defined benefits scheme);  
  • introduces the concept of 'collective benefits', where benefits and risk are shared between members within the fund, but no extra funding obligation lies with the employer.  It also sets up the legislative framework for the legal requirements that will apply to these sorts of arrangements – e.g. regulations may require trustees to obtain an actuarial report to value the assets held for the purposes of providing collective benefits.

We are still waiting for much of the detail about how these 'new' arrangements will work, but employers may wish to start to consider whether or not these schemes would be a good fit for their businesses and workforce, given their aim of facilitating more risk sharing between employer and employee without the full burden falling fully on either. It is important to note that there is no obligation for employers to consider or provide these new types of schemes, although employees and unions may well start to propose them.

Finally, the Government has chosen not introduce the flexible DB models referred to in our December pensions priorities article on this, stating that research shows that to make enough of a difference the proposed flexibilities would have to apply to accrued rights which it has no intention of affecting.