DB providers offering more support and flexibility

15 May 2019

People with defined benefit (DB) pension plans are being offered more support by their pension providers, new research shows.

Unlike a defined contribution (DC) plan, where your retirement income is based on the amount of money saved each year, with a DB or 'final salary' pension the income you receive at retirement is guaranteed, based on how many years you've worked for your employer and the salary you've earned.

For several years there has been concern that DB members have been opting to transfer out of their 'gold plated' pensions, giving up the guarantees they offer, without properly thinking through the consequences. In many cases, members who transfer will end up worse off.

But a survey of over 320 DB schemes shows that things are moving in the right direction, with a clear trend of schemes providing members with more support in planning their retirement finances.

Almost one in five schemes now make online tools and/or IFA support available to members, along with figures to help them make an informed decision, compared to around one in ten schemes in the same survey in 2018. This proportion is expected to increase to almost one-third of schemes over the next 12-18 months.

Additionally, around one in three schemes offer more flexibility alongside the usual options of a standard transfer value, a pension and a tax-free cash lump sum. Of these, almost a third (32%) were providing members with the option to convert some of their pension at retirement for a higher level of pension in return for lower future increases. Another quarter (24%) offered a partial transfer option, where members transfer just a proportion of their DB pension while leaving the rest in the scheme -- providing a balance between security and flexibility.

"Transferring out of a DB scheme can be seen as an 'all or nothing' decision but options such as partial transfers can be considered a middle ground between the security offered by a DB pension and the flexibility from transferring to the DC world," said Ben Roe, senior partner and head of the member options team at Aon.

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