On 22 November 2012, the Department for Work and Pensions (the "DWP") published its much anticipated paper on its strategy for workplace pension reform, entitled "Reinvigorating Workplace Pensions". It explores the case for greater risk-sharing between employers and employees than is the case with conventional defined benefit or defined contribution schemes.
The paper identifies six principles that will underpin the development of defined ambition ("DA") schemes:
- consumer focus - DA schemes must address consumer needs;
- sustainability - they must be affordable to stakeholders over the long term;
- intergenerational fairness - the needs of future pensioners should be accounted for;
- risk-sharing - a DA scheme should incorporate genuine risk sharing;
- proportionate regulation - there should be a balance between enabling innovation and protecting members' interests; and
- transparency - including high governance standards.
The paper discusses several models, both new and existing, which support risk-sharing. Of particular interest is the conclusion that collective defined contribution schemes, which enjoy support in the Netherlands, are "probably not feasible" in the UK for "cultural and institutional" reasons.
The DWP will seek to identify at an early stage what provision can be made without enabling legislation, but will also explore the scope for amending the regulatory framework. A publication outlining the framework for DA pensions is expected to follow, and any proposals to change the law will be subject to formal consultations.
The paper can be read by clicking here.