Defined benefit schemes are offering more support and flexibility to members, according to Aon’s 2019 Member Options Survey.
The 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 pension freedom reforms become an accepted part of the pensions landscape, the survey showed that only 10 per cent of schemes are now simply meeting ‘statutory requirements’ - down from 16 per cent in the same survey from 2018.
Schemes are also offering additional flexibility alongside the usual options of a standard transfer value, a pension and a tax-free cash lump sum, the survey found.
Of these, almost a third (32 per cent) 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 per cent) 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.
Commenting, Aon senior partner and head of the member options team 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."
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