Estimated reading time: 3 minutes
Retirement decisions are complex, and it is no doubt easier to communicate a select few choices rather than the full range of alternatives. Yet the freedom and choice reforms of 2015 have given members far more options as to how they spend their pensions than ever before. Focused on doing the right thing for members, and protecting their interests, should trustees provide full details of all the options or should they shy away from those that carry the greatest risks – such as transfers out?
We believe trustees have a responsibility to make members aware of all their pension options. But each trustee will interpret their duties differently. For an increasing number of trustees who want to present members with the full suite of options, showing each choice in an open, balanced and transparent way will enable the member to make an informed decision (after taking additional advice, if appropriate).
However, this does leave the member with some difficult choices, including the sourcing of additional advice itself. The recent review by the Financial Conduct Authority (FCA) of DB transfer advice concluded that the advice from some IFAs, was unsuitable in more than half of cases they examined.
We expect the FCA will tackle the quality of advice separately, but still, this lack of consistency rightly concerns trustees and, for some, supports their initial view that facilitating, and potentially even raising transfers as an option, is fraught with pitfalls (although oddly an exchange for cash is seen as business as usual). With the right support and processes, we believe trustees shouldn’t be afraid of apprising members of their full options, including a transfer. Full disclosure certainly avoids members blindly following the wrong path and later bemoaning (or worst still complaining against) the lack of attention given by trustees in raising the options available to them.
Members’ unknown unknowns
Trustees cannot possibly know their members’ individual circumstances and members often don’t know which factors are relevant, or which options they have, so communication must begin sufficiently in advance of retirement.
Modelling tools – like our own Me2 – offer practical insight into the benefits options and, importantly, the implications of how different decisions will affect a member’s benefits in retirement and enable members to think about all their various arrangements in one place. The bite size education focus allows members to better understand the factors in play and how different decisions they might make will impact their retirement income both now and in the future.
Such an education tool can be used as a precursor to the advice phase – where an advice route (such as a transfer) is followed informing the member of the topics for consideration, whilst also providing members who do not wish to explore all options with reassurance they are not missing out.
Choosing good advisers
Trustees often note that they find it difficult or uncomfortable to direct members either to a single or panel of independent financial advisers.
We have experience of working with a range of firms and can provide background due diligence and bespoke advice to help establish the best fit for your members’ circumstances that might be a longlist, shortlist or single provider. Not all schemes will want to support the financial cost of advice, however, by selecting an adviser and negotiating favourable terms, there are likely to be considerable savings for members. The cost for a negotiated package might be a little under £1,000 whilst a member going direct may pay two to three times that amount, and that ignores any costs associated with the receiving arrangement!
End result: a good retirement income
Trustees go to great lengths to secure enough funds to provide their members’ benefits for retirement. It is right therefore that they are wary that members don’t, through ignorance or design, end up without access to a good retirement income.
By making members fully aware of, and educating them about, the alternatives supported, as appropriate, with easy to access high-quality advice, trustees may be confident that they have provided members with the best possible start to retired life.