UK – The establishment of a government-backed defined contribution (DC) protection fund could be the best way to allow for cheap guarantees due to the "challenges" posed by the solvency requirements for private sector approaches, the UK's pension minister has said.

Reflecting on the potential introduction of a Pension Protection Fund (PPF) for DC schemes in the UK – mooted as part of last year's Department for Work & Pensions (DWP) paper on the reinvigoration of workplace pensions that outlined a number of ways defined ambition (DA) schemes could be introduced – Steve Webb said there were concerns about the solvency capital requirements that would be placed on the private sector if they entered the market.

"If we are going to have financial guarantees, they have got to be backed," Webb told a joint OECD/Pensions Institute conference on DC, guarantees and risk sharing yesterday. "Backing through solvency is very, very expensive."

He said individual banks had discussed with his department how best to achieve guarantees and that the DWP had been examining both the possibility of private and quasi-government solutions – the latter of which, he said, were potentially more able to provide security "cheaply".

Speaking at the same event, the chairman of the National Employment Savings Trust (NEST) Lawrence Churchill said there was some "great work" being done by the DWP and that the proposed DC PPF – which Webb has in the past described as a smoothing fund – was "quite an attractive solution".

He appeared to view greater risk sharing as a possible route, telling attendees: "We do need a better solution than merely transferring all of that risk onto those who don't understand it."

His view may not have been shared by Tim Jones, chief executive of NEST, who noted that the fund had – during its time as the Personal Accounts Delivery Authority – considered introducing a level of guarantee, but decided against it.

He said Webb was interested in "challenging and provoking" the pensions industry into having a debate on its future, and that it was "natural" such a debate would also cover a potential DC protection fund.

However, Jones sought to portray NEST – with its focus on clear member communications and target date funds, including an element of life-styling – as being already part of a defined ambition future.

He appeared to favour higher contributions by members, saying it was important to assess the value of guarantees "versus just encouraging people to put more money in and to put that extra money to harder work".

Churchill meanwhile said the debate around defined ambition needed to address "each and every one" of the issues raised by the European Commission in its White Paper on Pensions.

He said focusing on participation, adequacy, security and sustainability – the commission's four key areas – would result in a more "harmonious balance" within the pension system.

The chairman added that there was a need for an "unrelenting focus on outcomes" as part of the DA debate.

"Outcomes for the key players – principally the individual, the people who draw their pension, of course – but also outcomes for employers and outcomes for the state itself," he said.

"While there are many, many important issues to debate about methodologies and the means of getting there, I want to stress it's the result that matters. We need to begin with the end in mind."

Churchill also said there was currently "too much leakage of fees" to administrators, and praised recent industry initiatives, such as disclosure requirements backed by the National Association of Pension Funds, to address the issue.

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