Risk Management
Aon
Full Credential Description
In the context of pension schemes, the recent market conditions have significantly improved buyout positions, with an average increase in solvency funding levels of around 10% over the past year, and some schemes experiencing increases as high as 30%. This shift has prompted trustees and sponsors to prioritize endgame planning, as the timeline for potential buyouts has unexpectedly shortened. However, this positive development contrasts sharply with the challenges faced by members, particularly in light of the ongoing cost-of-living crisis. As schemes accelerate their endgame planning, there is a critical opportunity to enhance member benefits before the buyout occurs. For instance, options such as the Pension Increase Exchange (PIE), which allows members to trade future pension increases for a higher initial pension, and access to independent financial advice (IFA) or online modeling tools, can be pivotal. Historically, once a scheme is bought out, the likelihood of offering additional options diminishes, as insurers typically provide only compulsory options post-buyout. This creates a governance challenge for trustees, who must communicate these options to members before the transaction to ensure they can make informed decisions that may be more favorable than post-buyout terms. Moreover, the evolving landscape indicates that one-third of defined benefit schemes are now providing additional support to members through IFA advice or online modeling at retirement. This trend reflects a growing concern for member experience among trustee boards. Some schemes are now negotiating with insurers to maintain the same level of optionality and support post-buyout as was available pre-buyout. This proactive approach not only enhances member experience but can also lead to cost reductions in securing the scheme with an insurer or potentially result in a larger refund of surplus. In summary, the case study highlights the importance of strategic communication and member support in the lead-up to a buyout, emphasizing that trustees should consider the implications of their decisions on members' options and support both before and after the transaction. By prioritizing these elements, trustees can create a win-win situation that benefits both members and the overall scheme.