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Article | Pensions Briefing

Accelerating your pension scheme strategy

Member options for deferred pensioners

By Abigail Currie and Tom Wilton | August 24, 2023

Whether your scheme is heading for buyout, consolidation, run-off (or perhaps you’re just not sure yet) – member options can play a key role.
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Member options have always been a natural part of a defined benefit (DB) pension scheme, providing members with choice as to when and how they take their retirement benefits.

Some member activity will occur naturally over time, but this can be accelerated and enhanced by communicating with members about their existing options and/or introducing new options. This also improves member understanding and gives members flexibility to take their benefits in a way that suits their personal circumstances, which should also mean better member outcomes.

Crucially – members accessing benefit options (such as early retirement or transfer) can provide schemes with lower risk and greater certainty over the benefits they need to pay out, which can ultimately lower the cost of providing the benefits. This can help schemes accelerate their journey plan against key funding measures, particularly buyout. It can also support schemes that want to work their capital a bit harder, in a risk-managed way, to generate further surplus for the benefit of members (for example to provide discretionary increases), the sponsor and the wider economy – see our White Paper: Six changes to seize the DB pension surplus opportunity for more information.

Where to start?

There’s a range of approaches that can be taken, depending on the scheme’s objectives and the timeline to their ultimate goal. Therefore, it’s important for trustees to develop a clear policy for member options that integrates with their wider strategy and ultimate target.

As a minimum, most schemes should consider issuing a bulk early retirement communication and a regular pre-retirement “warm-up” mailing. These act as a reminder to deferred members of the benefits available, which may have changed materially following recent high levels of inflation. Clear and engaging communications will increase member awareness and take-up of retirement options – increasing certainty of the scheme’s payments by crystalising commutation lump sums and pension payments.

For schemes on the road to buyout, the premium saving from members commuting pension and the cheaper pricing for pensioners can easily be 10%.

How can schemes go further?

Schemes with a longer journey plan (~2 years+) or targeting run-off should consider a review of the communications and support provided as members approach retirement. Growing trends are:

  • Moving communications online to provide members real-time interaction with their benefits, speeding up the decision making process and reducing carbon footprints.
  • Partnering with a financial adviser firm to help more members make the best retirement decision, at lower cost than they can obtain on the high street.

This framework can then easily be leveraged for any subsequent bulk mailings.

Introducing new retirement options and developing a strategy for future bulk mailings may also be beneficial for schemes with a slightly longer time horizon, for example a:

  • Bridging Pension Option – the option to exchange some lifetime pension for a temporary pension to ‘bridge’ the gap to state pension age.
  • Pension Increase Exchange – the option to have a higher starting pension in exchange for lower (or no) future increases.
  • Transfer Values – the opportunity to exchange a DB pension for a cash value to access more flexibly. 

Experience shows the additional optionality is welcomed by members and accelerates schemes’ journeys to their end-state by bringing forward payments and reducing risks (e.g. longevity and inflation). WTW’s DB Member Choice Survey 2023 provides the latest information on the popularity of these options.

Next steps

Discuss further with your WTW consultant or please contact one of our experts below.


Abigail Currie
Head of Member Options and Governance Specialist
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Tom Wilton
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