Aon plc, a leading global professional services firm providing a broad range of risk, retirement and health solutions, has said that UK defined benefit (DB) pension schemes are continuing to offer more support to members for their decision making at retirement, with almost one in five schemes now including personalised transfer value figures in retirement packs.
Aon’s 2019 Member Options Survey gives a snapshot of how sponsors and trustees are deciding on the options to make available to members and what member support should be in place. The survey of over 320 DB schemes, found a clear trend of schemes providing members with more support with their retirement. Almost one-in-five schemes now make online tools and/or IFA support available to members, along with the figures to help them make an informed decision, compared to around one-in-ten schemes in our 2018 survey. This group is expected to increase to almost one-third of schemes over the next 12-18 months.
As the changes introduced in ‘Freedom and Choice’ become an accepted part of the pensions landscape, the survey showed that only 10% of schemes are now simply meeting ‘statutory requirements’ – down from 16% in the same survey from 2018.
New flexibilities
The survey also found that around one-third of schemes offer additional flexibility alongside the usual options of a standard transfer value, a pension and a tax-free cash lump sum. Of these, almost a third (32%) were providing members with the option to convert some of their pension at retirement for a higher level of pension in return for lower future increases (a pension increase exchange option), with another quarter (24%) offering a partial transfer option. A partial transfer gives members the option of transferring just a proportion of their DB pension while leaving the rest in the scheme – providing a balance between security and flexibility.
Ben Roe, senior partner and head of the member options team at Aon, said:
“There was initially some debate around the level of support to offer DB members when transferring their benefits, but the trend we are seeing in the market is quite clear. An increasing number of schemes are moving towards offering members additional advice and the tools necessary to make well-informed decisions at retirement. It is surely better for trustees or sponsors to make this advice available to members, rather than leaving them to fend for themselves in finding a suitable IFA.
“Another key change is in the flexibility being offered to members within DB schemes, so that the freedoms available in DC schemes can be mirrored. Transferring out of a DB scheme can be seen as an ‘all or nothing’ decision but options such as partial transfers can be considered a middle ground between the security offered by a DB pension and the flexibility from transferring to the DC world. This is definitely one of the areas to watch in the coming year as the potential options gain awareness and popularity.”