Risk-sharing schemes try to find a balance of shared risk somewhere between DB and DC schemes. In risk-sharing schemes, members take on some of the risk of providing the scheme benefits. There are now a number of known ways of achieving this:

• Changing accrual rates for future accrual and/or increasing normal pension age – subject to scheme rules employers may choose, in respect of benefits accruing after the date of the change, to reduce future accrual rates (eg from 1/60ths to 1/80ths), and/or to increase normal pension age, (eg from 62 to 65). This means that scheme benefits would be “tranched” with rights accruing from the date of change being payable at a later normal pension age than rights accrued up to the date of change.
  
  
• Capping pensionable pay
  The employer might decide that only the first one per cent of each pay increase will increase the pensionable pay used to calculate the pension on retirement and any further element of a pay award will not be pensionable for future accruals
  
  
• Cap and share - when scheme valuations show increasing cost pressures, increases up to the level of the cap could be shared (50/50) between employers and employees, with costs above the cap being picked up by employees.
  
  
• Career Average Schemes – a percentage of salary, usually revalued annually, is allocated to the employee’s pension pot. Final benefits are paid from the scheme as under traditional DB.
  
  
• Longevity Adjusted DB schemes - this is where schemes can adjust benefits to take account of changes in longevity, for future accruals only. In such cases, provisions would be written into the scheme rules that if longevity increases to a specified level, the scheme’s benefits would be adjusted for that tranche of benefits accrued after the date of change to take account of the fact that they will be paid for longer than originally anticipated.
  
  
• Cash Balance Schemes – the employer guarantees a pension pot to scheme members, payable at normal pension age, with which they can purchase an annuity.
  
  
• Hybrid - a scheme with more than one section or element, for example DC with a DB underpin. Here employer and employee contributions go into a DC pot, but the employer provides a low level of DB benefits as an underpin. This means that, at normal pension age, the member gets either the invested money purchase value of the pot, or the DB pension, whichever is higher. The way that this type of scheme is regulated is that if the value of the accrued benefits fall below the DB floor, the scheme must be funded to the level of the DB underpin. Costs may be higher because each pot must be held separately and two separate calculations must be carried out each year in respect of the same pot, so as to check whether the scheme has met funding requirements.
  
  
• Self annuitising hybrid schemes– benefits are money purchase in the build-up phase but the annuity is normally provided by the scheme rather than secure with an insurance company. However, the member retains the right to an open market option – the option, at retirement, to purchase an annuity with an insurance company of the member’s choice, which enables consumers to shop around for the best annuity rates available on the open market.

Angela Eagle, Minister for Pensions, says the government is committed to keeping defined benefit alive

Also see Pensions Week's ideas on making pension schemes affordable.