Defined Benefit (DB) scheme members need better information about their options under the Freedom and Choice reforms, according to a new paper from LV=, the UK’s most trusted and recommended insurer.
While there has been much talk of how the reforms have opened up options for those with Defined Contribution (DC) pensions, there is still confusion among DB members about their choices. New LV= research has found that nearly half (45 percent) of over 55s with a DB pension don’t feel they have the necessary knowledge to make an informed decision about their retirement. In addition, three in ten (29 percent) are unlikely to seek advice, meaning much of the responsibility to educate members – and to ensure people can make safe, sustainable choices about their income – falls to scheme trustees.
Written by retirement expert Billy Burrows, ‘Wake up to freedoms: How to achieve good member outcomes’ is the first in a series designed to challenge the current viewpoints on retirement and DB schemes. This paper aims to help scheme trustees understand the challenges and opportunities of the new retirement landscape, while making the case for providing better information so members can fully understand their options.
For the vast majority of people staying in their DB scheme will be the best choice, but there will be some members who would benefit from transferring out. Current low gilt yields and low interest rates mean that people could get a very favourable amount for transferring their benefits and this, coupled with the change in death benefits, could make moving to a DC scheme appealing for many. It is therefore vital that trustees are transparent with scheme members about all their options.
Many pension professionals will be inclined to favour the security of guaranteed income over the new options, but retirement is a personal choice and the pension freedoms were designed to give everyone flexibility and control, where appropriate. Steve Lewis, Head of Distribution, LV= Retirement Solutions, said: “The pension landscape has changed dramatically following the Freedom and Choice reforms and DB transfers are becoming increasingly popular. We believe that advice is crucial to help consumers get the best outcomes but each week thousands of people are retiring without support.
“Trustees have a key role to play in providing transparent information to scheme members about their options but we know that many DB members don’t currently feel they have enough knowledge. Most people are frightened of pensions, and have little idea of the options available to them. If members feel ill-informed, this could leave trustees exposed to litigation in future. Through LV=’s Corporate Solutions offering we want to help the industry wake up to the pension freedoms and ensure members have the support they need to make the best decision.”
Billy Burrows, Director of Retirement Intelligence added: “The initial focus for Freedom and Choice was to provide flexibility and control to DC pensions, but now we need to ensure that DB scheme members are equally well-informed about the reforms and can make the best long term decision for them. With a significant increase in transfer requests recently, it’s vital trustees provide information and support to their members to ensure they make the right choice at retirement.”