Offering clear Member Options could reduce cost for UK DB Pension Schemes by c£100 billion
22 Jun 2022
The buyout cost for UK Defined Benefit (DB) Pension Schemes could be reduced by c£100bn by offering a clear range of options to DB members according to analysis by Hymans Robertson. This saving equates to broadly a three-year reduction in timescales for reaching buyout, providing huge value for DB schemes and their members, claims the leading pensions and financial services consultancy. It warns that many DB schemes are taking longer to reach their final point, unnecessarily, by not considering the role that member options can have.
The analysis looked at the value member options could have if applied across the full UK DB universe of c5,200 schemes and c£1.7tn of liabilities. It considered the impact of a range of member options including, early retirement, Pensions Increase Exchange (PIE), Bridging pensions and transfer values. The findings showed that where pension schemes are more proactive in providing increased choice to members, then the benefits in terms of both the time and cost to reaching buyout can be materially reduced. This means that schemes are exposed to less risk for a shorter period of time – benefiting both members and trustees.
Commenting on the analysis, Ryan Markham, Head of Member Options, Hymans Robertson, says:
“The value of being proactive around member options is significant. We’ve looked across the UK DB universe to help highlight this, but the relative value at an individual scheme level will also be significant. Importantly this isn’t all about transfer values. There are a range of in scheme options including Pension Increase Exchange and Bridging pensions which have significant value to members but could also benefit the scheme’s journey plan.
“By giving members increased choice within the scheme it may mean that they can access their benefits sooner, and in a different shape, which will better meet their needs, whilst not presenting them with an all or nothing decision like a transfer value. As well as being attractive to members, especially in the current high inflation environment, these options can have material savings against the cost of securing the standard scheme benefits with an insurer.
“A good member options strategy is about providing valuable choice based on the specifics of a scheme’s members, communicating that choice well and providing members with trusted support they can turn to in order to support better decision making. Done well, this has significant benefits for members and their scheme.”