Balancing act for pension scheme trustees facing DB transfers
7 September 2017
Trustees face a difficult balancing act in how they communicate the availability of a pension transfer, says Aegon, in response to a report that highlighted a lack of timely information and advice for those in salary-related pensions.
Research carried out by pensions consultant LCP and mutual insurer Royal London found the majority of the five million people with rights in a salary-related pension from a former employee are not receiving the information and advice about the choices available to them to shape their pension.
Findings revealed that most occupational pension schemes had not significantly changed the way in which they communicate with members and deferred members despite the introduction of pension freedoms in April 2015.
According to the report, one in 10 schemes write to members well before their normal pension age about their pension options, with the remaining 90 per cent contacting members for the first time as they approach normal pension age, typically 60 to 65. While most schemes have an option for deferred pensioners to take early retirement, four in five do not highlight this to members.
Steven Cameron, pensions director at Aegon, says the introduction of the pension freedoms has led to increasing numbers of individuals with defined benefit schemes asking if the grass might be greener on the defined contribution side, creating a delicate situation for scheme trustees.
He says: “While those with frozen defined benefit pensions can’t access the freedoms within their schemes, they can if they transfer to defined contribution. But this is a ‘giant step’ as the cost of accessing flexibility is the loss of a secure income for life.
“Undoubtedly, there’s scope for improvements in how these older defined benefit schemes communicate with their members, including around any flexibilities which already exist. But trustees face a difficult balancing act if proactively communicating the availability of a transfer. This could be seen to be encouraging members to transfer away at a time when some employers would welcome this as a means of reducing their defined benefit pension liabilities.”
LCP and Royal London are calling upon schemes to provide more timely and comprehensive information to members about their options, which could include annual statements and updates from age 55. They also recommend a new legal right to a partial transfer of rights under a salary-related pension scheme.
Steve Webb, director of Policy at Royal London, says: “The introduction of pension freedoms has given people with pension investments a wide range of new choices. But millions of workers who have rights in salary-related schemes with their previous employers may not be aware that they also have rights which could also be moulded to better fit their individual needs. For those considering transferring out of a salary-related scheme, the option of a partial transfer would offer a welcome new flexibility and is strongly supported by advisers.
“More should be done to streamline the process of transfers to remove unnecessary delays.”
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