What are your thought on defined contribution plus models? Let us know
In the Defined Ambition consultation paper, we talk about 4 models which might work. We’d like to know what you think about the practical implications of each model. Found in chapter 4 here: https://www.gov.uk/government/consultations/reshaping-workplace-pensions-for-future-generations
What we’re trying to achieve
The models are around the idea of people saving gradually for their pensions, with 2 of the models looking at a guarantee of the income they’ll get in retirement.
This should help people paying into pensions see ongoing growth, and help employers with recruitment, retention and enabling retirement for their workers –this could help by offering a pension deal that builds on the good things DC offers but gives members more certainty than DC.
Our models also try to decrease the risk associated with a one off annuity purchase at retirement.
This focus also complements the change to a single-tier State Pension - the combination of which will give people a much clearer understanding of what their income will be in retirement, and what the result of any additional private investment will be.
The models we’re looking at
We’re proposing 4 models to achieve these aims. They are set out in detail in the consultation paper (link above) but in brief, they are:
Money-back guarantee - This encourages pension providers to guarantee that the value of the member’s pension pot does not fall below the nominal value of contributions to the role, basically members pension pot will be a least the amount that they put in.
Capital & investment return guarantee - These would involve guaranteeing the value of a members pension pot once it has reached a certain size, so how much will the pension pot grow by and guaranteeing that amount.
Retirement Income Insurance - In this model, fiduciary’s would take part of the pension pot each year (once reaching a certain age), purchasing income insurance on behalf of the member. So some of the members pension pot would be used to purchase some insurance and then the rest would be used to Increase the members pension pot
Retirement income builder- In this model contributions are used for two different purposes. A proportion is used to purchase a deferred nominal annuity, payable from the current pension age. For every year of contributions each individual has a pension made up of a series of these deferred annuities. Thus the individual can see their pension income increasing over time
Let us know what you think
Please let us know in the comments below how well you think any of these models would work in practice - and how they could contribute to risk-sharing.
Look Forward to hearing from you
Sam
DA Team
DWP
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