UK – Steve Webb has sought to allay fears that the end of contracting-out among the UK's defined benefit (DB) schemes will have a "seismic effect" on the country's pension industry.

Discussing the planned state pension reforms – ones that will see the end of the state second pension (S2P) and therefore the end of contracting out of the state tier – the pensions minister said he did not believe those companies still operating DB funds would see it as an opportunity to end the provision.

"The guys who have survived, there is a reason they are still doing it," he said, adding that he did not see the introduction of a statutory override to allow sponsors to force accrual changes, recouping the cost of the increasing national insurance (NI) contributions as a "particular risk".

Giving evidence to the parliamentary select committee on work & pensions, Webb also insisted that the override, criticised as "unnecessary" by the TUC in a previous session, could not be used as a "backdoor" way of amending benefits any further than the increased NI costs.

The Liberal Democrat insisted those companies still offering DB pensions viewed it as important for employee retention and dismissed criticism that ending contracting out would act as a "nail in the coffin" of DB provision.

"So, whilst they could use the opportunity of the end of contracting out to get rid of that type of pension scheme altogether, and some may choose to do so, frankly, the 'nail in the coffin' analogy – this coffin has got enough nails in it already," he said. "So if they are still going now, this will have some effect, but I don't see it being seismic."

He said he viewed proposed changes to the IORP Directive as a much larger threat.

"Solvency II would be a pretty big, fat nail, which hopefully we can see off," he said.

Webb has previously indicated that the end of contracting out would also remove the current legal requirement for DB pensions to be index-linked, as the funds would no longer be offering benefits in place of the state pension system.

Committee chairman Dame Anne Begg also asked Webb about his proposals for defined ambition (DA), arguing that they currently were "a bit vague".

The minister accepted that this was the case and said the Department for Work & Pensions was working to flesh them out.

"Because of auto-enrolment, because of the end of contracting out, big firms are doing a lot of big thinking about long-term pensions," he added. "We need to be ready for them as fast as we possibly can, and I entirely accept that point."

Keith Ambachtsheer recently made a similar observation, saying DA needed "flesh on the bones".

Webb also reiterated that he hoped to tackle the quality of funds being used under auto-enrolment, saying that, while minimum levels of contributions were mandated, it was "not good enough".

"We don't want people auto-enrolling into not good enough schemes," he said. "We don't want people auto transferred into not good enough schemes. We are very actively working on a lot of those things – it is a very live agenda."

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