The rapid decline in defined benefit (DB) pensions over the past few years has put an end to a guaranteed income for most employees, however, the government is hoping its new 'money safe' plan will give certainty to workers when they retire.
There are 1.2 million active DB pension scheme members in Britain today, compared to 8 million in the 1960s. The decrease is understandable – as people live longer it is unsustainable for companies to keep on paying out these generous pensions.

The majority of companies now run defined contribution (DC) contributions which take the risk of pensions off of the company and put it on the saver; if you don't save enough to secure a decent retirement that's your problem.

But pensions minister Steve Webb has floated the idea of a 'money safe' guarantee that effectively provides an insurance for pension income, ensuring that you get at least your contributions back in retirement.


However, there's a catch – the products to achieve such a guarantee do not exist and frankly, it seems unlikely that the insurance industry would be willing to develop those products when they propose a lose-lose situation for it.

Insurance is a risk-based business. Take car insurance, everyone buys it but the insurance company only pays out for those that have accident, with those that don't have an accident subsidising those that do.

The insurance industry runs the risk of you crashing your car – it isn't a certainty that you will crash. However, there is a certainty that you will retire and a pension income will have to be paid out (or you die and your pension is paid to your spouse or partner).

If the insurance company will always have to pay out, how can it offer a guaranteed income? The fact that insurance companies have shelved a number of guaranteed annuity products over the past five years shows that providing of income is almost impossible.

If it were to be offered, surely it would be so prohibitively expensive that it just wouldn't be worth it, or too expensive, for average pension savers.

Trying to guarantee income is a good idea, and Webb's intentions are admirable, but telling the insurance industry it needs to come up with ideas is a bit vague – it tried to guarantee pension incomes before and it didn't work. What makes Webb think it will work a second time round?

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