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Briefing Notes

Briefing Note 65 - Defined Ambition in Workplace Pension Schemes

Over the last 40 years workplace pension provision in the UK has been changing from being predominantly based on Defined Benefit (DB) schemes, where the risks of pension provision are borne by the sponsor, to Defined Contribution (DC) schemes, where the risks are borne by the member. The Government has published a consultation paper Reshaping workplace pensions for future generations which sets out some proposals to implement Defined Ambition (DA) pensions. These types of pensions are intended to provide more certainty for members than a traditional DC scheme and to also ensure less cost volatility for employers who sponsor DB schemes than current DB pension schemes.

This Briefing Note discusses the possible impact of some of the DA pensions proposals for DB schemes’ members. It also assesses the different DA options based on a DC pension structure. This note does not analyse the impact that the proposals could have on the broader private pension market or on whether employers would be more likely to offer one type of scheme than others. It finds that DA options for DB and DC schemes could lead to innovation in pension provision in the UK. However, there are still some significant questions that need to be addressed to ensure DA pensions help to reinvigorate workplace pension provision in the context of automatic enrolment.

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