Defined Ambition Pension Plan

Defined Ambition Pension Plan.

Steve Webb, Minister for Pensions, has suggested that he will explore with financial companies, the ability to deliver a 'defined ambition' pension plan.

Pensions are clearly on the minds of many at present with investment markets quote volatile and those luucky enough to have final salary schemes worried for the future of their pension scheme.

Final Salary Schemes are just far too expensive for employers to run.  Employees think 6% as a contribution is adequate when we believe a more realistic contribution for such a scheme should be nearer 20% of salary.  Indeed, many pubic sector workers are striking on the back of proposed increases in payments together with reduced benefits.  

The minister is looking for ideas on how to offer "guaranteed pensions" but with a sharing of investment risk between employee and employer.

Our view
We believe the idea of 'defined ambition' pension plan is of merit.  Guaranteed pensions are fine provided the burden of meeting those guarantees is shared by both employer and employer.  It is no use offering a scheme that both employees and employers pay 6% each and then when the going gets tough, requiring an increase in funding to say 25% of salary, that the employee argues to stay paying only 6% and the employer has to make up the shortfall of 19%.  If all would be happy to fund at 12.5% each in difficult periods then we see no problem.  The reality is that many employees would leave the scheme when they find how expensive it can be.