Pensions minister Steve Webb has praised supermarket group Tesco for proposing changes to its pension scheme designed to allow it to continue offering a defined benefit plan.

The Tesco pension scheme last week revealed that it plans to raise the retirement age of its scheme to 67, becoming the first major employer to make this move.

Webb told the Pensions Management Institute's spring conference that the move will put into practice the kind of risk-sharing he wants to encourage as a middle way between defined benefit and defined contribution pensions.   

The UK's defined benefit schemes are increasingly closing their doors to new members and being replaced by less generous defined contribution plans.

Webb hopes that demand from employees can see the "pendulum will swing back".

Webb said that employees are likely to question pension plans which give "no idea on the benefits you will get after saving all your life".

Employers will likely need, however, to put aside their concerns to bear any financial risk of a corporate pension fund. He believes that "some firms will be happy to provide this certainty."

One idea Webb offers is defined contribution plans that tell employees "if you work all your life you will get a pension worth between this and that amount." Webb terms that "DC plus".

Offering a minimum benefits level would see a company share the investment risk with employees saving into the plan.

Such minimum guarantees might reassure savers, and if at a modest enough level, spare companies the need to inject cash into the pension fund unless it has dire investment returns.

The Tesco pension scheme was heralded by Webb as an example of an employer sharing longevity risk with employees. The minister labelled this a "DB minus" approach.

Tesco plans to allow members to still retire at 65 and draw benefits accrued to dat. It will though make future benefits accrue until 67 to reflect increasing life expectancy of its workers.

Webb said he wants to work on "creating a regulatory regime that allows 1000 flowers to bloom".

Legislation that requires defined benefit plans to offer compulsory inflation increases and survivor's benefits is seen by many as having prevented employers offering hybrid risk-sharing schemes.

Webb said "Why shouldn't we say: 'Great, get on with it!' if an employer wants to provide a pension in addition to the state pension?"

Webb added that he is planning a "prawn cocktail offensive around Britain's boardrooms to find out if there is any appetite for risk sharing". He will also visit the Netherlands to see how risk-sharing works there.

He said the Department of Work and Pensions will then aim to publish documents on encouraging risk-sharing pension schemes later this year.

Webb was in good spirits after the announcement of a flat-rate state pension of £140 a week from 2016 in this week's budget.

Many commentators credit Webb for getting the proposal adopted by the treasury. The minister is hoping that clarity in the state pension system can prove to be a solid foundation for reform of occupational pensions.  

dbillingham@wilmington.co.uk