Member options can 'materially' cut time and costs on road to buyout

UK defined benefit (DB) pension scheme buyout costs could be reduced by as much as £100bn by offering a clear range of options to members, potentially cutting the timeline to reach buyout by around three years, analysis from Hymans Robertson has revealed.

The firm argued that member options could provide “huge value” for both DB schemes and their members, warning that many DB schemes are taking longer to reach their final point by not considering the role of member option exercises.

Indeed, the analysis suggested that, where pension schemes are more proactive in providing increased choice to members, the benefits in terms of both the time and cost to reaching buyout can be “materially reduced”, with schemes exposed to less risk for a shorter period of time, to the benefit of both members and trustees.

The analysis was based on the value of member options across the UK DB universe, and considered the impact of offering a range of options, including early retirement, pensions increase exchange (PIE), bridging pensions and transfer values.

However, Hymans Robertson head of member options, Ryan Markham, emphasised that whilst the analysis has used the UK DB universe to highlight the "significant" value member options can hold, the relative value at an individual scheme level will “also be significant”.

“Importantly this isn’t all about transfer values,” he explained, continuing: “There are a range of in scheme options including PIE and bridging pensions which have significant value to members but could also benefit the scheme’s journey plan.

“By giving members increased choice within the scheme it may mean that they can access their benefits sooner, and in a different shape, which will better meet their needs, whilst not presenting them with an all or nothing decision like a transfer value.

"As well as being attractive to members, especially in the current high inflation environment, these options can have material savings against the cost of securing the standard scheme benefits with an insurer.”

“A good member options strategy is about providing valuable choice based on the specifics of a scheme’s members, communicating that choice well and providing members with trusted support they can turn to in order to support better decision making.

"Done well, this has significant benefits for members and their scheme.”

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