More members are transferring out of defined benefit (DB) pension schemes when informed of the option, which suggests trustees must think carefully about member communication, according to research.
While DB transfers can help manage the costs and risk of running a DB scheme, they have also started to appeal to a significant proportion of DB scheme members in recent years. The way schemes communicate this as an option has a big impact on how many decide to transfer, according to a study by Willis Towers Watson.
Findings from the report, DB member choice survey 2018: The continued rise of pension flexibility, showed the majority of schemes experienced up to 30% of members over the age of 55 transferring out of their DB pension scheme after they were proactively contacted and offered access to flexibility, and impartial financial advice, paid for by the scheme. This compared to an average of 31% in 2016/17 and 18% in 2015/16.
However, different schemes produced different results. For example, some 8% transferred out of a DB scheme if it had a weak transfer value basis, compared to around 80% who transferred in a scheme with a strong transfer value basis.
The research surveyed financial advisers, and combined this with Willis Towers Watson's own experiences, to find out what over 200,000 DB members in 400 schemes have chosen to do since April 2015.
Where a pension scheme was more proactive in terms of member communication and the provision of access to impartial financial advice, the risk of members making decisions which may not be in their best interests was mitigated, said the consultancy's head of member options Abigail Currie.
According to Currie, this means schemes need to think carefully about how they communicate the options available to their membership as it could make a huge difference. "Even schemes that do proactively communicate and provide access to impartial financial advice have experienced very different outcomes amongst their population, particularly in relation to transfer exercises," she said.
"This highlights the importance for DB scheme trustees and sponsors of understanding the context of their scheme, communicating in an engaging way with their members, and understanding how and where members can receive the financial advice they need."
The report recommends schemes give members the option to work with an appointed financial adviser directly, which would save time and expenses being used up with interactions between the advisers and scheme administrators, on a case-by-case basis.
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