Management Consulting

The case study highlights the challenges faced by defined contribution (DC) and defined benefit (DB) pension scheme members as they approach retirement. Members often encounter complex, irreversible choices that significantly impact their financial futures. For DC members, the absence of a default retirement option necessitates active management of investments and withdrawals, while DB members require specialized financial advice for benefit transfers. A key issue identified is that support may be too late if it only becomes available upon request for a quotation. A survey indicated that 70% of DC members expect guidance from scheme trustees, suggesting that the current "stronger nudge" requirements may not be sufficient. To address these challenges, Aon implemented proactive measures to enhance member support. They initiated trials for a "stronger nudge" that encourages members to engage with guidance services starting at age 55, facilitating earlier retirement planning. Additionally, Aon is assisting clients in conducting comprehensive reviews of their educational and advisory offerings, ensuring that members receive timely and relevant information about their retirement options. The introduction of annual benefit statements for DC members serves as a reminder of their savings and potential retirement income, while DB schemes are increasingly adopting similar communication strategies. Furthermore, Aon emphasizes the importance of integrating advice into the support provided to members. A significant portion of DB schemes now offers online modeling tools and access to independent financial advisers (IFAs), often at reduced costs, with many schemes covering the advice fees entirely. This approach not only improves member outcomes but also mitigates the risk of scams and enhances the affordability of financial advice. For instance, it was noted that one-third of DC members who enter drawdown without advice are fully invested in cash, potentially missing out on significant income increases by diversifying their investments. By facilitating access to advice and creating a cohesive support system for both DB and DC members, Aon aims to improve retirement outcomes and ensure that members are better equipped to make informed decisions.