The DWP is also seeking views on whether greater risk sharing could be accommodated without major changes to the existing legislative framework.
It has also announced that it intends to amend the current Pensions Bill to abolish the protected rights ‘survivor’s benefit’ rule which currently requires an individual with a spouse or civil partner, at the point of annuitisation, to use any contracted-out rights in their pension pot to purchase a joint life annuity. It accepts that a joint life annuity may not be in a couple’s best interests, for example if they both have built up good pension pots.
Advisers and providers have welcomed the news although some have expressed frustration that the change will not come in until 2012.
The DWP is also to confirm that investors can transfer their protected rights to Sipps from October of this year. Investors currently hold around £100 billion in protected rights funds with insurance companies, representing around a fifth of their pension assets under management.
Secretary of state for work and pensions James Purnell says: “We want to encourage innovation and growth in the market. But we also need to strike a balance between reducing costs for employers and protecting members’ benefits. The aim of the consultation is to build a consensus around the motivations, interests and needs of employers – while assessing the risks and outcomes for pensioners of different approaches.
Richard Mulcahy, principal consultant at Hewitt says: “We believe that risk sharing can be a key means of combating some of the major issues currently facing pension provision in the UK. These we believe are most notably over-regulation and over-protection of defined benefit schemes – which result in too much risk being taken by employers, while in defined contribution schemes, too much risk is being taken by employees.
“The result is that we have a two-tier pension system – the DB haves and the DC have-nots. We do not believe that there is enough flexibility in the current structure to address these problems.
“There are clearly many variables for ongoing consideration, including the interaction with other pension legislation within the UK and EU, but my hope is that any problems arising can be overcome.”