Pension savers could be allowed to insure their pots against falls in the stock market in order to ensure a degree of investment security and encourage saving.
Pensions Minister Steve Webb said that pensioners should be offered more “certainty” over what can be expected from their pension funds on retirement.
Many of those saving into workplace pension schemes may have seen the size of their pension pots diminished in recent times due to factors such as the government quantitative easing programme and temperamental stock markets, and many final salary schemes have now closed.
According to the Office for National Statistics just 48% of workers are paying into a workplace pension, the lowest level since records began in 1997.
Minister Webb said:
"I am convinced people have a huge appetite for certainty about their pension savings and this demand will drive the shape of pension provision in the future. I want industry to innovate and think hard about this.
"With the dawn of automatic enrolment the market is growing - so now is the time for pensions industry to look at the market gap in relation to affordable guarantees and provide the products consumers are seeking."
"For example one end of the spectrum could be providing an affordable 'Money Safe' guarantee where the member would get back at least the nominal value of their contributions - individual, employer and tax relief. Another could be offering an investment strategy that reduces the probability of capital loss such as NEST.
Webb’s comments come as part of a wider drive to encourage pension saving in the UK which includes the phasing in of new pension laws later in the year that will mean that by 2017 employers of all sizes will need to auto-enrol qualifying employees into a suitable workplace pension scheme and offer a minimum level of contributions.
Auto-enrolment changes could see up to an additional 10 million people being joined up to workplace pensions, but those who are will need an incentive to stay.
Research from the National Association of Pension Funds (NAPF) found that 54% of people were not confident in understanding pensions compared to other types of saving.