DB scheme Trustees should push for improved member communications

06/02/2015

Premier, the corporate benefits and wealth management firm, has suggested that Defined Benefit (DB) schemes’ Trustees need to place a greater emphasis on improving communication with and education of their members.

Premier’s research found DC scheme sponsors have seen a significant knowledge gap for many members with regards to their pensions. Premier sees this as a significant issue for DB schemes in the future, where many members will not fully understand the way the Budget reforms apply to them.

In the survey, which was carried out amongst HR, Finance and Pension Professionals at the end of 2014, respondents rated their concerns in the following order:

DB Issues (in order)

DC Issues (in order)

Cost of funding the deficit

Level of Contributions

Cost of future benefits

Compliance with Regulations

Investment Risk

Quality of advice to members

Compliance with Regulation

Meeting Auto-enrolment rules

Longevity Risk

Communication with members

Sponsors of Defined Contribution (DC) schemes and Trustees that offered both DB and DC schemes ranked the importance of member communication advice more highly than those who only offered DB schemes.

Ian Gutteridge, Director of Premier, said:

“DB scheme members have previously seen their benefits as ‘gold-plated’ and were deemed the best available. Since the pension reforms however, the greater freedoms have changed the game and some DB members are now seeing their schemes as inflexible and restrictive. DB scheme Trustees therefore face a significant communication and education challenge in de-mystifying the changes to help members make the best decision.

“There is also an opportunity for DB Trustees to significantly de-risk their arrangements for the betterment of both the scheme and its members; an issue that some DB sponsors may have considered. This addresses what the survey showed was the main issue for DB scheme Trustees: the cost of funding any existing deficit. Given that a Transfer Value will often be lower than the prudent reserve held within the DB Plan, then if it is in the member’s interest to transfer to take advantage of the new freedoms then the member, the Scheme and the sponsor will benefit. Thus some employers and trustees are looking to help members assess the possible benefits from either early retirement or a transfer.”

As the pension freedoms - applicable only to members of DC schemes - inch closer, Trustees of DB schemes are expected to realise that their members will not benefit from the changes that are being so widely publicised. As a result DB Trustees will be compelled to improve member communication. There is also concern that long-term apathy towards pensions has left many people too without the experience and knowledge to make the best retirement decisions for their own circumstances.

Gutteridge continued:

“We expect the factors that DB Trustees deem important to change significantly in the coming months as DB members realise the new freedoms available do not apply to them. This will put pressure on DB Trustees to communicate more widely with their members and to provide levels of education not deemed necessary in the past.”

“It is encouraging to see those with DC arrangements recognise the fact that the average level of contribution is not high enough and something needs to be done. Member communication and advice – both high on the list of stated issues - is the only way in which this will be resolved. This is especially the case where they work alongside a DB arrangement which will commonly provide better benefits.”