Pension scheme focus on member support grows amid pandemic

There is an increasing focus on providing member support within the pensions industry, according to research from Aon, which found that 10 per cent of schemes are now providing defined contribution (DC) members with fully funded or subsidised independent financial advice (IFA).

This was highlighted as a new trend for 2021, as schemes look to replace 'old style' annuity brokers with 'whole of market' independent financial advisers who can advise on annuity and drawdown products.

Aon's 2021 Member Options survey also revealed that half of the defined benefit (DB) schemes surveyed quote, or shortly plan to quote, transfer values in retirement packs, with around 60 per cent of these schemes providing additional support at retirement through online modellers or IFA.

An increased focus on members has also been highlighted in light of the impact of the pandemic, with one fifth of schemes surveyed considering or having already taken action to reduce risk or increase flexibility for members as a direct response to the pandemic.

In particular, one third of those schemes are closing to future accrual or implementing changes to future benefits, whilst a further third are running redundancy exercises, and the final third are introducing new member options, with the goal of reducing risk.

Aon emphasised, however, that decisions to close schemes to future accrual or implement benefit changes were likely made prior to the pandemic, with the risk and uncertainty stemming from Covid-19 potentially bringing forward implementation dates.

It argued that the pandemic has also brought greater focus on the need to support members with their retirement decisions, especially where members need to retire early due to redundancy, noting that many schemes going through these exercises as using the consultation period to launch online modellers or IFA support.

In addition to this, it found that a number of schemes are implementing a Bridging Pension Option, either in bulk as part of a redundancy programme in retirement, in turn allowing members to reshape their pension gives them the opportunity to retire earlier than they would otherwise have been able to afford to.

However, Aon has also warned that despite increased focus on support for members, recent guidance from the Financial Conduct Authority (FCA) will require "careful interpretation" from trustees to ensure member support remains consistent and effective.

Commenting on this, Aon head of member options, Kelly Hurren, stated: “Thankfully, the FCA has recognised the important role that trustees and employers play in educating members on their options.

“The FCA has also acknowledged that trustees and employers may be in a better position to identify a suitable financial adviser for members and to negotiate more favourable commercial terms than individual scheme members.

“However, the guidance is less clear in other areas such as how to educate members appropriately on options outside the scheme.

“Our experience is that the leap from generic information to formal regulated advice is too great for many pension scheme members and that educational online tools play a vital role in bridging this gap.

“Sensible judgement of the guidance will therefore be needed to ensure that the industry’s progress in educating members over recent years continues – and particularly at a time when members are likely to need this support more than ever."

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