The government is exploring new types of pension schemes that would give more security to retiring workers.

Minister for Pensions, Steve Webb, says the government is looking at several options that might become, what he terms, a “defined ambition plan”. The idea is to replace final-salary pensions, which have become too expensive for many private firms.

Private sector workers could be offered a fixed retirement income if they agree to work longer, or guaranteed pension pots. The Lib Dem minister said ‘a measure of certainty in their future pension’ would be welcomed by employees. He added: ‘The Government is therefore looking to investigate options for a new model – the defined ambition pension – where the risks and uncertainties are more evenly shared between employer and employee.

‘One example is the so-called “cash balance” scheme, where the firm guarantees to deliver a fixed pension pot on retirement and the employee then bears the uncertainty as to how much pension that pot of money will buy. ‘Another model is to share some of the uncertainties of rising life expectancies, so that firms pay a guaranteed pension but the date on which that pension is paid can change for future accruals if people live longer than expected.  ‘Or there could be new models where younger workers are told that their pension could lie somewhere within a wide range but as they get older they are given more and more certainty about what their final pension will be.’

Mr Webb said the schemes could offer greater flexibility to firms without ‘loading all of the uncertainty’ on to employees. Currently, the value of many workers’ pensions is dependent on the stock market and interest rates. The new schemes would replace final salary pensions, which have now been abandoned by the vast majority of private companies and are only typically available in the public sector.

Final salary schemes guarantee that a worker receives an income of up to two thirds of their annual income for each year of their retirement. However, they have become prohibitively expensive for firms, which have to boost the value of pension funds if their investments have not performed well. Companies have also faced a rising bill from poor annuity rates, which means that the value of pension schemes must be higher to ensure a guaranteed annual income. Rapid increases in life expectancy have also added to the costs.

Mr Webb’s announcement, in an article for the Daily Telegraph, comes on the day that struggling pensioners will scoop the biggest cash increase in the state pension since it was introduced more than 100 years ago. From today, the full state pension for a single person, currently £102.15 a week, will jump to £107.45, a rise of £5.30. The Prime Minister, who has come under fire for the ‘Granny Tax’ – the scrapping of pensioners’ age-related tax allowance – said the move proves that pensioners are not being ignored.

He said: ‘I know these are difficult times, but my promise to pensioners is that we are on your side.’ However last night experts said that while the rise in the basic state pension is good, it is overshadowed by a crippling change to a crucial top-up in benefits, known as pension credit. Around two million pensioners will be caught in the trap, which means they will not benefit from the big cash increase. The change has come as a shock to many pensioners who received the news in letters from the Department for Work and Pensions revealing their state pension for the new tax year.