Pensions minister Steve Webb has laid a new bill before Parliament allowing financial providers to import retirement saving schemes like those in Denmark and the Netherlands.
Called a defined ambition pension, the new scheme is a halfway house between existing defined contribution and defined benefit pensions.
Webb says he has proposed his bill after massive support from employers, unions and retirement savers.
However, industry experts claim they do not know of any financial firm considering introducing the new idea.
The defined ambition scheme allows workers to pool their retirement savings in collective investments.
What is a defined ambition pension?
Both defined contribution and defined benefit schemes are investments in personal funds.
Defined ambition schemes are said to improve pension income by up to 30% for savers by reducing costs and allowing economies of scale to buy into more efficient investments with bigger funds.
They give an estimated retirement income, but not a guaranteed return.
In contrast, defined benefit schemes, which are mainly public sector pensions, offer a guaranteed retirement income.
A defined contribution scheme pay out depends on the level of contributions into the scheme and stock market performance, so cannot guarantee a retirement income.
Webb says around 30% of employers have expressed interest in setting up a defined ambition pension.
The defined ambition scheme lets savers share the risk of a defined benefit scheme with employers.
Pension risks
Webb said: “The government has already changed how and when savers can access their pension cash with other measures. Now we want to encourage people to save throughout their working life by giving them more choice.
“I believe the new defined ambition pension meets the needs of retirement savers and employers who are both worried about risk and the income paid in retirement.”
Other recent pension changes include changing rules to allow anyone aged over 60 to draw small pot pensions worth up to £30,000 as a 25% tax-free lump sum and a taxable balance.
From April 2015, the government proposes to drop the age limit to 55 years old and to raise the cap on pension values.
The rules only apply to defined contribution pensions – defined benefit schemes are outside the scheme.
The pensions are said to give retirement savers more choice about how to access, invest and spend their money.
However, they also tackle issues like pension liberation schemes allowing savers to take their cash early and the intransigence of pension providers to reduce fees and give a better deal to retirement savers.
