DB pension savers increasingly taking advantage of flexibilities

Growing numbers of people are taking advantage of flexibilities in their defined benefit (DB) pension schemes to design a personalised retirement journey, research from LCP has found.

LCP highlighted that people are increasingly taking up the options offered by their DB scheme to reshape their benefits, such as through Pension Increase Exchanges (PIE), which allow members to exchange some of their future inflation protection for a higher pension now.

An increase in schemes offering ‘bridging pensions’, which offer an increased scheme pension when the member first retires that then falls back when state pension kicks in, was also observed.

LCP predicted that there was likely to be growing interest in this option as state pension ages increase.

The research also stated that the growth in number of pension schemes appointing financial advice firms seemed set to continue, not least as members are finding it increasingly hard to source affordable and independent advice with regard to DB transfers.

It added that simply appointing an adviser was not enough to drive take-up of financial advice as, according to LCP, all the advice firms agreed that good communications are essential to making an appointment a success.

The growing interest in member options, supported by the provision of access to financial advice support, was found to be driven by a mix of motives, such as the rigid structure of DB benefits not suiting an increasing number of members that no longer want a ‘one-stop retirement’.

Furthermore, the research noted that trustees and sponsors were recognising the challenges for members in choosing between different benefit options.

It also stated that as DB schemes were increasingly looking to endgame and de-risking, giving members options to reshape their benefits can help improve the underlying funding position of the scheme.

LCP partner, Steve Webb, commented: “In the past, retirement was very much a one-size-fits-all experience. People took the pension they were offered on a standard date and in pretty much the same way as everyone else.

“Today, members are able to build their own retirement journey which can have multiple elements. Different pensions can be taken at different times, and existing benefits can be reshaped, for example to act as a bridge between stopping work and reaching state pension age.

“Faced with this blizzard of choices, members increasingly need high quality financial advice, and it is welcome that growing numbers of DB schemes are now sourcing such advice on behalf of members. When member options are done well, this can be a win-win for both scheme and member.”

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