Bulk member option exercises: What are the benefits for schemes and members?
Industry Voice: Over the past three years, sponsors and trustees have been navigating their way through the pension freedoms and trying to predict what impact they will have on their pension schemes.
Over this time, we have seen a huge increase in demand from sponsors and trustees alike in running bulk member options exercises where members are informed of options available to them - both within and outside of the pension scheme - and given independent financial advice to help them understand those options.
Such exercises typically include bulk transfer value exercises (with or without an enhancement) and pension increase exchange exercises.
To enhance or not to enhance?
When looking at transfer value exercises in particular, potentially the two most important considerations are:
1. Whether transfer values are sufficiently attractive for members to want to transfer out of the pension scheme; and
2. Whether transfer values are sufficiently attractive for members to want to transfer out of the pension scheme now.
If the focus is on maximising risk and liability reduction in the short term, the second point becomes crucial. In this scenario, the decision of whether to offer members an enhancement to their transfer value comes into play.
In the exercises Aon has led since 2015, around half have offered members enhancements, and those exercises have seen more than double the level of transferring members on average.
Our statistics tell us that even a small enhancement can have a noticeable impact on the outcomes of an exercise.
To read the full article and gain access to Aon's Guide to Member Options, click here.
Oliver Cowan is a senior consultant at Aon.
