A leading HR consultancy, Hewitt Associates, has called for greater innovation in pension design to reinvigorate the UK’s occupational pensions industry.
It said that plan design must respond directly to expected changes in the UK’s demographic profile, as people work longer and demand greater flexibility on the time of retirement.
The company said some hybrid designs, such as career average alary plans and cash balance plans, are a welcome step towards a better compromise for sharing risk.
But it is concerned that these minor variations will not go far enough to meet the likely demands of companies and their employees over the next decade.
Raj Mody, pensions strategy consultant at Hewitt, said: “We need to get away from the idea that retirement happens over a weekend.
“Instead, because of changing work and retirement patterns, people are more likely to want to phase into retirement, possibly over several years, taking on a different or part-time role as they do it.
“New pension designs must support, not hinder, that need.”
The consultancy said greater flexibility in pension scheme design is crucial to enabling employees to take control of their retirement income and for employers to take control of their risks and costs.
It is calling for employers and employees to find middle ground where financial risk can be shared in a flexible way.
Mody said: “Existing final salary or defined contribution arrangements are not sustainable for most employers or employees, as one party bears all the financial risk in either scenario.
“This is just not workable in the long term, yet these designs continue to make up a majority of the UK occupational pensions market.”
Kevin Wesbroom, retirement consultant at Hewitt, said some companies were beginning to react to the challenges they will face over the coming years, especially around managing an older workforce and holding on to selected talent.
“This is a growing minority, but we still feel there needs to be much greater awareness of these issues.
“Leading companies will want to make sure they do not end up behind the times,” he said.