On the run up to Pensions Freedom Day the focus has been on “how many members will transfer from a Defined Benefit (DB) Scheme to a Defined Contribution (DC) Scheme” or “how many members will take their full fund as a one off cash sum”. That day has now come and gone and it’s time to start focusing on the future for DC members.
Prior to the 2014 budget, members of DC arrangements could take 25% of their pot tax free on retirement and use the remaining pot to buy an annuity. The majority of members (up to 80%) did not consciously make any investment decisions and their funds were fully invested in the default fund. Members simply left the default fund to do the rest and hope for the best when they reached retirement. Read more »
Spence & Partners, the UK pensions actuaries and administration specialists, today advised that defined benefit (DB) trustees need to gear up to use the power they can now have at the touch of a button.
Alan Collins, Head of Trustee Advisory Services at Spence & Partners, commented: “With Pensions Freedom Day capturing the headlines, it would be easy to think that DB schemes have been left behind. But actually the development of technology in the past year has been such that trustees now have the potential to operate their schemes in a much more effective and efficient way.
“With the right system, trustees can now have daily valuation figures and actuarial analytics based on live administration data, daily asset feeds from investment managers and projected future cashflow information at their finger tips. The days of waiting for actuaries to provide complex reports and calculations are over – it is up to trustees to ensure they have the right processes and structure in place to use up to date information and speed up their decision making.” Read more »
We are only days away from 6 April 2015 when the new pensions freedoms take effect. Communication of the upcoming changes is being ramped up in the popular press, and this will undoubtedly lead to increased interest from members in gaining access to their pensions savings.
The game changer is the complete flexibility for over 55s to take their pension benefits from a DC scheme in whatever manner they wish. Many defined benefit (DB) scheme members will be demanding similar flexibilities from their own pension arrangements. Legislation does not yet allow DB schemes to offer this, so we would expect there to be strong demand from DB members to transfer their benefits into a defined contribution (DC) scheme at retirement in order to access these.
The new norm will be for members to request transfer value quotations at least annually from age 55. A large number of retirees will elect for the security of the traditional DB pension, but a significant proportion – perhaps the majority – will transfer out in order to take control of their savings.
What should trustees and employers be doing as a result? If this is managed properly, there is a real opportunity for a win-win-win for members who receive their benefits in a manner that is more valuable to them, for employers who benefit from a smaller more manageable scheme and a reduction in exposure to cost increases as liabilities transfer out, and trustees who are able to deliver tangible value to their members and reduce risk levels in the scheme.
One thing is for certain: doing nothing is not an option. Read more »