This year’s survey - the fifth from Aon – gained the views of over 300 UK DB schemes. The results showed that, regardless of their chosen method for GMP equalisation, one-third of schemes are using the process as an opportunity to improve the options or support members receive at retirement.
Kelly Hurren, partner and head of Member Options at Aon, said: “In the 2022 survey results, there continues to be a clear trend of schemes providing members with more support when making retirement decisions. Many schemes that had been planning to act in this area are also separately in the process of tackling GMP equalisation and so, unsurprisingly, we are seeing schemes recognise the efficiencies of bringing actions in these two areas together and reviewing member options and support at the same time.
“Although GMP conversion is often seen as the natural fit with approaches such as Pension Increase Exchange or Bridging Pension Options, we are also seeing schemes that are going down the ‘dual records’ route taking the opportunity to consider their ‘at retirement’ communication strategy and support to members. This includes providing access to an independent financial adviser (IFA), which helps inform better retirement decisions.”
Kelly Hurren continued: “It makes sense for trustees to make the most of the opportunity to increase the value of their GMP equalisation project. Aside from the efficiencies of making these changes at the same time - given that retirement processes need to be updated for GMPs anyway - this combined approach also brings value to members through additional choices and understanding, in what could otherwise be viewed as just a compliance exercise.”
Member support
The survey results confirm the consistent upward trend since 2018 of schemes providing members with more support with their retirement decisions. Of the schemes surveyed this year, 32 per cent provide (or shortly plan to provide) additional support to members through online modellers and/or independent financial advice.
Kelly Hurren said: “We believe that it is good for members to discuss one of their most important financial decisions with a qualified financial adviser — and that’s regardless of whether they choose to retire from the scheme or transfer elsewhere. Where IFA support is provided, the majority of schemes (67 per cent) provide fully paid-for advice. Compared to 2020, there has also been a small shift towards advice being paid for solely by the trustee or shared in some way between the trustee and the sponsor. While this is likely to achieve the highest engagement from members, it’s not something that’s affordable for all schemes. It’s therefore reassuring to see schemes in this position still supporting their members to get good quality support. We saw 25 per cent of schemes providing members with a preferred IFA, but with members expected to meet the cost – albeit at a reduced rate because the scheme has paid for the set-up and negotiated lower fees on their behalf. This approach also gives the added benefit that the IFA is educated on the scheme benefits in advance.
“Reassuringly, we found that almost 90 percent of schemes plan to review their appointed IFA regularly, and of these schemes, 40 per cent have a governance structure in place to do this annually. This practice is consistent with guidance released by the Pensions Ombudsman in March 2021, which stated that schemes should have a mechanism in place to confirm that the IFA remains appropriate for the scheme after appointment. The COVID-19 pandemic and current high levels of inflation have increased member demand for IFA support and we expect this to continue through the next two years as members navigate new forms of volatility.”
Bulk member options exercises
Most schemes surveyed (56 per cent) have run, or are planning to run, bulk member options exercises as part of their long-term/endgame strategy.
Kelly Hurren said: “Where schemes are heading towards a potential insurance transaction, trustees are taking the opportunity to communicate with members about their options before both the options and the support available irrevocably changes after the transaction. From a corporate or trustee perspective, these exercises are often used as part of a strategic roadmap to reduce pension scheme risk and to improve the funding position - while members also benefit from increased flexibility.”
New trends
The survey found that 27 per cent of schemes surveyed have either started or are planning to consider how Inclusion and Diversity (I&D) impacts the information and support members receive. One-third of respondents have already, or are considering, how environmental, social and governance (ESG) considerations impact the information and support provided to members.
Kelly Hurren said: “Despite inclusion and diversity being at the forefront of business plans in recent years, nearly two-thirds of the schemes surveyed have yet to consider this in the context of their member communication strategies. On the other hand, just over a quarter of respondents have considered or have plans to consider their communication strategies. We expect this to grow over the next year, particularly in light of the targets set by The Pensions Regulator in 2021, which will better address the needs of underserved markets.
Kelly Hurren continued: “The Pensions Schemes Act 2021, which recently came into force, includes wide-ranging obligations on trustees in relation to climate change, and this has brought ESG into greater focus for many schemes. Despite this, we found that only 30 per cent of schemes have considered or are planning to consider how ESG impacts the information and support members receive.
“Incorporating ESG into the member communications strategy doesn’t have to be complex and schemes are typically starting by considering the environmental footprint of their paper communications and moving more of their communication and support for members online.”
|
