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Our viewpoint

Helping DB members
make better retirement decisions

It’s now more than two years since pension freedom and choice changed the pensions landscape forever – giving both DC and DB members new choices, and making the option of a DB to DC transfer much more attractive for many individuals.  And yet many pension schemes continue to communicate with their members in effectively the same ways as they have done for many years.

Since then, there has been a dramatic increase in DB to DC transfers, which can in some circumstances be positive for both the member and the scheme.  There is of course a risk that the “wrong people” are transferring, but equally a risk that some members who are not transferring would in fact be better off doing so, and they are simply not aware of their options or don’t know how to get the advice they need to help them decide.  Many DB members also have other options, such as early retirement and levelling pensions, that can be financially more attractive to them and their families, compared to the standard normal retirement pension.

LCP and Royal London have published a joint policy paper that reports on new LCP research on the information and help provided to DB members in the run up to retirement, and new Royal London research on the viewpoint of financial advisors who help members make decisions about DB pensions.  The research shows that many DB members coming up to retirement are not receiving timely information and advice about the many choices they have to shape their pension in a way that suits them.  These choices are generally irreversible and making the right choice can make a big difference to members and their families. 

The policy paper goes on to call for improved information to be provided to members, and for them to have improved access to specialist, cost effective financial advice, to make them aware of their options and support them through the decisions they have on quite possibly their largest financial asset (often worth more than their home!).  There are a number of changes that regulators and the government can make to better protect members, and there are also many actions that schemes can take in the meantime that would help. 

For example, some schemes have started to send warm-up letters at age 55 to deferred members, reminding them of their options, and giving them an easy way to ask for benefit quotations.  Around 30% of schemes in LCP’s survey now quote transfer values as part of their retirement communications, providing members with balanced quantifiable information about a key benefit option.  And others have appointed a trusted financial advisor to help members with their decisions.

Over the next decade, millions of DB deferred pensioners will retire, with many different options available to them.  Hopefully regulation and scheme practices can catch up with pension freedom and choice flexibilities to ensure that members are aware of their options, and are supported in making the best decisions for them.

Download our research here