The fourth annual DB Member Choice Survey shows that trustees and sponsors are increasingly striving to help members understand their options and take informed decisions, with one in three schemes (33%) quoting individual transfer values on at-retirement benefit statements, and more than one in five (22%) appointing an independent financial adviser to support members.
This has increased the total number of members deciding to transfer out of their DB pension in order to access “freedom and choice” when they reach retirement age. Of members who receive support from their scheme, between 40-60% are likely to engage with financial advisers, a range unchanged from last year’s survey.
The research also suggests that, while the number of members taking up transfer options is higher than ever due to the increase in the number of schemes facilitating member engagement, levels have declined as a proportion of those receiving financial advice in the last year. Anecdotal feedback from financial advisers participating in the survey suggests a number of potential influencing factors – including continuing economic uncertainty related to Brexit, and heightened regulatory scrutiny leading to more caution among financial adviser firms.
There is less variation in take-up rates for pension increase exchange (PIE) exercises, which – as in previous years – remains primarily between 25-35%. Although some schemes may have different experiences, the research indicates that the general expectations of a PIE exercise are that around one in two members will engage with an IFA, and around one in three will take up a PIE.
Stewart Patterson, Director, Willis Towers Watson, said: “This year’s survey – the most comprehensive we have yet undertaken – confirms a number of trends identified in previous years. Most striking is the consistently high proportion of members engaging on their “freedom and choice” options when offered support and advice by the trustee or sponsor. The advantages of offering such support to members – both in managing the costs and risks of running a DB scheme, as well as offering members valued help – seem to be increasingly recognised by schemes, with growing numbers facilitating this sort of support.
“This year’s findings also indicate – perhaps unsurprisingly – that members are less inclined to engage when they are required to pay for their own advice, a point which schemes should reflect on when planning to engage with members. Anecdotally, IFAs participating in this year’s survey have also suggested that varying approaches to engagement based on scheme demographics can prove successful, with different approaches working for blue-collar and white-collar workers, for example. It’s therefore important to draw on experience from other schemes when planning how to engage members, and to carefully consider of the best approach from early in the planning stages.
“We’ve seen a growing acceptance that technology can play a large role in communicating with members, both in the run up to and at retirement. It is important trustees and sponsors recognise that individuals will absorb information differently and adopting a communication approach that uses a range of communication channels will help ensure all members have the information they need to make informed decisions.
“Although Brexit uncertainty and FCA scrutiny may have dampened the proportion of members transferring out of DB to access flexibility in the last year, I’d expect this to reverse in the future. Staying in DB will be right for many, but it’s wrong to think it is right for everyone. Individuals who have delayed at retirement decision during the current uncertain times may look again at their options in the coming years.”
Key findings from the research include:
• Transfers: engagement levels fairly stable between 40%-60% although lower proportion of members transferring compared to the recent past
• Pension Increase Exchange: continues to show stable and predictable outcomes with take-up experience around 30%
• Increasingly DB pensions are improving member communications to educate and raise awareness of pension options
• Favourable experience has meant many schemes are ahead of their funding plan and looking to member option exercises to further accelerate the journey to buyout.
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