Trustees are under pressure, but member options and support remain a priority

Polly Cripps, associate partner at Aon, explains why member support remains a crucial part of good risk management for defined benefit pension schemes

Helping members understand their retirement choices is not easy but explaining and supporting members with their options is vital for ensuring that members optimise their outcomes as part of their retirement planning.

Defined benefit (DB) trustees are already working hard to improve support for members. Aon’s 2023/24 Global Pension Risk Survey research found that those responsible for DB schemes are already putting more support in place to help members manage their retirement planning more effectively. For example, 48 percent already provide, or plan to provide, access to a preferred independent financial adviser in the near future.

It is also positive to see that half of DB schemes are planning to review their communication strategies in the next 12 months. This may be linked to wider compliance work, such as preparing for dashboards.

Member Support Action in the Next 12-24 Months

Source: 2023/24 Global Pension Risk Survey

Our research also found that trustees are facing a more complex and time-consuming risk landscape than ever before. But despite an increased regulatory burden and political uncertainty being a worry for 44 percent of schemes, trustees still clearly recognise the importance of supporting their members and ensuring that compliance-driven projects do not always take priority over important but less urgent projects such as member support.

Do not forget DB member support and options

Here are four ways that we are seeing DB trustees ensure that member support and options remain a priority alongside other projects.

Explore how other scheme projects can contribute to member support. Urgent, compliance-based work such as GMP equalisation can also provide wider benefits. For example, Aon found that three-quarters of schemes carrying out a GMP conversion are offering, or planning to offer, their deferred members either a pension increase exchange (PIE) or a bridging pensions option (BPO).
Think about DB and defined contribution (DC) in a single framework. Many DB trustee boards will also be responsible for a DC section or manage a separate DC scheme. It makes sense to consider both types of schemes together, within a single member support framework. This will help make members aware of all the retirement options available to them and enable them to make the best choices for their personal circumstances – an approach consistent with that of pensions dashboards.
Explain members’ options as part of buyout preparation. As many schemes get closer to their end goal of buyout, it is more important than ever to make members aware of their options within the pension scheme. Post-buyout, members may have less flexibility and the value of options such as transfer values can be lower. As a result, members might need to make important decisions before a buyout is completed or be aware of how their options will change for future decision-making. The average time for schemes to reach their long-term target (whether buyout or self-sufficiency) is now just 7.8 years. This may explain why Aon saw the number of schemes carrying out bulk transfer value communications to members increase from 37 percent in our 2021 survey, to 42 percent in 2023.
Show members how DB options can support their retirement plans. Members may find options such as PIE and BPO give them more flexibility when planning their retirement. They could also help members with wider financial issues such as the current cost of living. Members can use interactive online modellers to understand the impact such options would have on their income in retirement.
In particular, Aon is seeing more interest in BPOs. For a member retiring before their state pension age, a BPO provides higher workplace pension payments until the member become eligible for their state pension, at which point the workplace pension payments reduce. This keeps the member’s overall level of income consistent over time. Although only 12 percent of schemes offered these in 2021, this year’s survey found that 30 percent of schemes now provide or plan to provide a BPO.

As they approach retirement, members need to consider all their pension options to create the best possible income for their circumstances. It is vital that trustees help them to understand all their choices, both for their DB and DC savings. A framework such as Aon’s AIMS (At-retirement Informed Member Services) gives trustees a clear starting point that will help them to make sure member options and support remain a priority.

You can download a copy of the survey at www.aon.com/GPRS2023.

Disclaimer 2024 | Aon