Andy Fryer, Head of Proposition Development at Just Group
The value of a defined benefit (DB) pension has always been its ability to guarantee members an inflation-linked pension for life. Yet new research from Just Group suggests one in three DB members are most concerned about money heading into retirement.
The research, which surveyed 1,505 individuals with private DB pensions and at various stages in their retirement journey, confirmed that those approaching retirement today are more likely to find their DB pension pots only make up a smaller part of their overall pension plan. For these members, their retirement picture is more complex, and they are likely to require additional support.
"We found that, on average, those closest to retirement now have closer to four potential sources of income," explains Andy Fryer, Head of Proposition Development at Just Group, who notes member understanding of retirement finances can be low.
With the number of DB schemes moving to buy-out rising steadily, it is more important than ever that insurers help members understand their circumstances – particularly as the research reported more than half (54%) of pre-retired DB scheme members do not feel supported in planning for their retirement.
So, how can this be done with a population that has historically been reluctant to engage in retirement planning?
Improved communication is an obvious first step. A lack of engagement with pensions has long been an issue for the industry, but with Just Group's research revealing 29% of DB members are actively keen on more proactive communication and improved online functionality, now is good time for both trustees and insurers to reconsider their approach, according to Fryer.
"Historically, support has meant a lot of paper-based communication. It has often been a member-led process, such as a member requesting an early retirement quote" he says.
"We are now seeing a move to different forms of active paper-based communication, issued more pro-actively. For example, newsletters or an annual deferred benefit statement. Whilst schemes are not required to do this, there is a trend towards it."
Fryer suggests for individuals approaching retirement, communications that encourage retirement planning through small, incremental steps may provide an easier way for them to engage, without overwhelming them.
Of course, technology also offers more options for improving engagement, with Fryer noting that members of bigger schemes in particular are increasingly getting access to online portals where they can find out information about the scheme, see their benefits, potentially self-serve quote requests – and information is received immediately.
DB members also have the option of seeking professional advice to help them to better understand their situation. However, this also presents challenges. According to Fryer, individuals looking for financial advice have three main barriers:
- Understanding their options and realising they need advice
- Finding a financial adviser they can trust
- Cost and whether they consider financial advice to be good value
Just Group has been working to make things simpler. "We offer access to regulated independent advice to our policy holders and have embedded efficient processes to help bring down the cost" explains Fryer. "At this stage, the member needs to pay for this help but it's a trusted source of advice."
"So, by providing the right information to members and signposting reputable financial support, we're solving effectively the first two of the barriers mentioned. We've been the first insurer in the market to do that, and it ties into our ambition and purpose as a group – to help people achieve a better later life."
Is buyout key to member engagement?
Fryer also suggests that buyout itself could help to solve some of the challenges faced by the pre-retired when it comes to understanding and engagement. "It's a lottery what type of scheme you fall into in terms of the support available for members. Smaller schemes can struggle to offer the best support because of the cost of putting it in place. Yet you get a more uniform service and experience once you've moved to insurance," he says.
"When smaller schemes get to buyout and get to us, for example, we've been careful to make sure they all get access to the same services – including support options that perhaps were beyond their reach beforehand."
"Our research has shown that members need more holistic support with retirement planning," continues Fryer. "And it all needs to be done in a careful and sensible way to ensure great member journeys and experiences."
"By making the right support available at the right time for members, we can help insured members achieve better outcomes in retirement."
You can explore more of the options and products available to DB schemes by visiting Just Defined Benefits
