Actuaries back Steve Webb's defined ambitions

The Faculty & Institute of Actuaries, a UK trade body for the profession, has offered qualified support for the pensions minister Steve Webb's idea for retirement plans that would offer their members a partial money-back guarantee, instead of leaving them entirely at the mercy of the markets.

Earlier this year, Webb said one of his priorities was to encourage companies to offer pensions that offer workers some kind of assurance about their retirement income.

He dubbed his proposal "defined ambition", pitching it halfway between modern "defined-contribution" plans where members' pensions depend on the markets, and old-style "defined-benefit" schemes which offer a fully-guaranteed pension often based on workers' final salary.

Webb is consulting on a range of options for bringing "defined ambition" to life this autumn, but one option he has floated is a money-back guarantee, meaning workers will get back at least what they put in.

Some pensions experts have pointed out that such guarantees would come "at a price". ScottishLife, a division of insurer Royal London, said in a client-briefing in August: "These guarantees are certainly deliverable, however they would come at a cost. Similar funds have been on offer before, only to be withdrawn when they became too expensive to deliver."

But the Institute and Faculty of Actuaries, which has been studying this question for the past two years, published its findings yesterday and concluded that guarantees "need not be cost prohibitive".

Scott Eason, one of the authors of the paper, said: “We conclude that a full 'money-back' guarantee may not be practical, but that a guaranteed product to protect a built-up pension pot as individuals near retirement could be an attractive and affordable option."

The trade body suggested fund managers could use investment techniques designed to reduce stock market volatility, or more sophisticated versions of life-styling, in which members' money is moved into lower-risk assets as they grow older. This would prevent guarantees from "unduly dampening investment returns", the actuaries said.

Webb, who addressed the Institute's conference on the topic yesterday, said in a statement: "I have challenged the pensions industry to create new models of defined ambition pensions and this work is very encouraging. We will be publishing more ideas on reinvigorating workplace pensions later this autumn.”