28 August 08 – Publication of DWP research report: ‘Employer Attitudes to Risk Sharing in Pensions Schemes: A Qualitative Study’

Research is published today by the Department for Work and Pensions which presents the findings from qualitative research with thirty employers exploring their perceptions of risk sharing in pension schemes.

The main findings were as follows:

• Reasons for pension provision tend to focus around three key areas of paternalism, maintaining parity with competitors and the fact that the company has always provided a pension. Reasons tended to be broadly similar across the different types of organisations, regardless of the current form of pension provision.
• Overall, the employers in this study were not keen on a risk sharing approach to pension provision and in general, awareness of these approaches was low. Furthermore, some employers found the concept of risk sharing quite difficult to comprehend.
• Employers were generally sceptical about the risk sharing concept and very few employers perceived there to be any advantage in adopting such an approach because they were satisfied with their current pension provision; had concerns about the real costs of risk sharing; and perceived risk-sharing to be a complex concept which was difficult to communicate to employees.
• Employers were provided with examples of two approaches to pension scheme risk sharing and were asked to consider the pros and cons of each approach. These were Collective Defined Contribution Scheme (CDC) ¹ and Conditional Indexation Scheme (CI) ².  There was little enthusiasm for either aforementioned scheme.
• Employers in this study had no plans or intentions to introduce a risk sharing approach to pension provision. Employers with existing Defined Benefit schemes were committed to maintaining their existing approach because they viewed it as a key tool in attracting and retaining staff. Employers with DC schemes expressed no interest at all in taking on any risk in relation to their pension schemes because they were accustomed to a ‘minimum risk’ approach to pension provision.

Notes for Editors

1. As part of its deregulatory review of private pensions, DWP published a consultation paper on risk sharing on the 5th June 2008. The consultation paper looks at a range of ways in which risks in occupational pension schemes could be shared between employers and scheme members, and considers the advantages and disadvantages associated with different approaches.
2. As part of the consultation process, DWP commissioned a small scale piece of research. The aims of this research were threefold. Firstly, it sought to explore and understand employers’ attitudes to pension risk sharing; secondly, to identify whether employers would be willing to adopt a risk sharing approach in the future if new flexibilities were introduced; and thirdly, to explore the potential barriers to adopting risk sharing in pension schemes.
3. The research used a qualitative methodology. Thirty face-to-face interviews were conducted with a range of employers drawn from participants of the 2007 DWP sponsored Employers’ Pension Provision (EPP) survey. Employers were selected to reflect diversity across type of pension provision, size and industry. Interviews were conducted with the person who had direct responsibility for making decisions about the employer’s pension scheme.
4. Employer Attitudes to Risk Sharing in Pension Schemes: A qualitative study will be published in the DWP research report series.

 

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Prepared by: Department for Work and Pensions Private Pensions and Cross-cutting Analysis Directorate