Lessons from British Steel
Are you letting your members sleepwalk into retirement?
28 Feb 2018 - Estimated reading time: 3 minutes
The pensions landscape has changed beyond recognition from how it was a few years ago. With Freedom and Choice firmly entrenched in the UK retirement landscape, the number of members engaging in their retirement options is at an all-time high. In the past six months we’ve seen a three-fold increase in requests for transfer values, with the number of actual transfers quadrupling across our client base compared to pre-April 2015 levels.
While increased member engagement is a positive sign, it’s important these choices are informed and exercised in the correct way in order to prevent members making irreversible life altering decisions.
The Work and Pensions Select Committee’s recent report on the British Steel Pension Scheme (BSPS) brought the trustees under the spotlight about their approach to helping members with the decisions they faced. The trustees made members aware of the need for advice and made sure this had been received before transfers were paid out. However, it is clear that much of the advice members found was poor and incredibly expensive. Despite trustees’ warning they were sitting targets for scammers and ‘preyed upon’ by some unscrupulous advisers.
The approach taken by the trustees of the BSPS is similar to the approach many trustees and employers are still taking towards the pension freedoms. Too many schemes are taking a passive approach to communicating with and supporting their members with the complex decisions they face. Not only does this put members at risk of poor retirement outcomes and scams, it also puts trustees and employers at risk of being accused of not providing sufficient information for informed choices to be made.
Lessons can be learned from this, not just by the trustees of schemes that fail, but for all schemes:
- Provide better quality retirement communications, far earlier in the process.
Ensuring members are engaging in their retirement options as early as possible can only bring advantages. Trustees and sponsors should communicate with members much earlier than is currently practiced to help improve engagement and understanding. This will ultimately lead to better retirement outcomes.
- Incorporate technology solutions that add value and reduce costs.
Technology solutions have provided a breakthrough in providing accessible, high quality education for members at an affordable cost to the scheme. Innovative solutions now exist which can provide members with interactive access to their own personal retirement options, including transfer values. This helps reduce the burden on the scheme’s administrator as members are directed to the information within the technology solution.
- Facilitate access to financial advice.
There is currently an undersupply of quality, affordable financial advice in the market, creating risks for members and schemes alike. Going through a careful provider selection exercise and facilitating financial advice to members can materially reduce this risk by providing quality support to members at an affordable price. Facilitating financial advice, rather than letting them find their own adviser, can save an average member thousands of pounds. More importantly, trustees and sponsors can be confident that those who transfer do so for the right reasons, with the right support, and via the right products.
Ultimately, whatever route trustees and sponsors choose, they should be taking an active role in educating members and providing them with sufficient information to help them make an informed choice. With sufficient planning and the right approach, we believe schemes can take freedom and choice in their stride, and ensure they’re not leaving their members’ retirement outcomes to chance. Getting this right can only be a win-win for schemes and their members.