Understanding member options: A win-win opportunity for all?
Member options often provide a win-win opportunity for all stakeholders involved in a pension scheme. Here, Aon analyses the different options available and why trustees and companies are making them available to pension scheme members.
Member options (commutation, early retirement, late retirement, etc) have existed for many years, but in 2014 the UK government announced freedom and choice in pensions. This big bang moment changed the face of pensions flexibility for members. Instantly members could take their entire pension as a lump sum and they no longer had to buy an annuity with their defined contribution (DC) pension. This change drove innovation in member options and there a number that are available today.
Why would trustees and companies offer these options?
Trustees are frequently considering offering more member options to provide greater flexibility to members when drawing their retirement income. It is important to trustees that these options are clearly communicated and their pension fund members make informed choices about their pension. This drives a successful member options exercise for the member, the trustee and the company.
Companies similarly have an interest in providing greater flexibility to members. However, they also often have a focus on managing their pension risk. Member option exercises allow the alignment of greater freedom for members with risk reduction and improved insurer pricing for the sponsor by reshaping/shrinking the sponsor's pension liability resulting in a win-win for all parties.
Aon expects member options exercises to continue to flourish as members benefit from increased freedom in shaping their retirement incomes
Click here to read Aon's Guide to Risk Settlement and to learn more about flexible retirement options, enhanced transfer values and pension increase exchange freedoms; and how they help pension schemes on their journey to buyout.