COVENTRY MESSAGE BOARD

Pensions minister Steve Webb is to urge UK companies to adopt Dutch-style pensions that tell savers 'roughly' what sort of retirement income they can expect.



The urgent reform plans have been sparked by the death of gold-plated pensions in the private sector.

Just 19 per cent of final salary schemes - where retirement income depends on length of service and earnings - remain open to new members, according to the National Association of Pension Funds.

Most employees are being funneled into so-called 'defined contribution' schemes, where pension payouts depend on how much is stashed away, investment performance, and interest rates at retirement.

Mr Webb told The Observer newspaper that he wants new 'defined ambition' schemes to fill a widening void as employees shun the less-generous alternatives.

The number of Britons saving into a pension has slumped to just one in four – its lowest level in a decade – according to Government figures.

Firms could be pushed into offering better alternatives, potentially using legislation. The Government is already forcing all firms to enroll their staff in a scheme automatically. By 2017, even the smallest companies will have to oblige.

Mr Webb said: 'A generation ago when you worked for a firm they provided a final salary pension and all the uncertainty was taken away from you as an individual and placed on the firm.

'Now there is a risk that pensions swing completely to the other end, the other extreme.

'If the investments don't do well, that's your risk. If people live longer, so annuity rates fall, that's your risk. Inflation higher than thought, that's your risk.'

The defined ambition style of pension being considered has been pioneered in the Netherlands. It offers added peace of mind because savers are given a predicted target for their retirement pot and income.

However, the assurances are only partial - unlike the full guarantees offered by final salary, which are also known as 'defined benefit'. In essence, the idea is to offer a semi-guaranteed 'range' for workers' final pensions, thus sharing risk more fairly.

Government regulation of the new schemes would be limited, and companies would be given more leeway when markets turn volatile, the Observer says.