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Government seeking replacement for final-salary pensions

A new type of pension scheme could be introduced as part of Government plans to find a replacement for final-salary schemes, it has been revealed.

The Pensions Minister, Steve Webb, has confirmed that the Government is exploring the idea of a ‘defined ambition plan’, which would aim to spread the risk more evenly between the employer and the employee.

A number of options are reportedly being considered, some of which could see employers providing certain guarantees when it comes to a retiree’s total pension pot.

In an interview with the BBC, Mr Webb said: ‘Firms would like to offer their employees some sort of certainty but without all the costs and burden they already face.’

However, the Institute of Directors (IoD) said it was ‘nervous’ about any new pension plan which involves guarantees.

Final-salary schemes guarantee that a worker receives an income of up to two thirds of their annual income for each year of their retirement.

However, the rising cost of final-salary pensions has prompted many firms to abandon such schemes.