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UK Workers Opting for Flexibility in Pension Plans


More workers in the United Kingdom are opting out of their pension plans to access the flexibilities afforded by the “freedom and choice” reforms of three years ago, according to new research by Willis Towers Watson.

The 2018 DB Member Choices Survey found that 20% to 30% of the non-pensioned population ages 55 and older are making this move when provided with access to information and paid-for impartial financial advice.

However, a significant proportion of plans taking similar action experienced very different take-up rates outside this range, suggesting plan sponsors need to think carefully about how the options available to their membership are communicated.

There also has been a clear shift in how members who choose to transfer invest their transfer value, with a noticeable decline in members using their entire pot of money to purchase a guaranteed income for life, in favor of a combination of products for providing income during retirement.

Pension increase exchange (PIE) options, which allow members who have already retired to reshape their pensions, also remain popular, as revealed by the survey. The data shows a stable level of interest in PIE amongst pensioners, with 33% of members given the choice of PIE taking the option last year, compared with 35% the previous year.

“Not all DB pension schemes have taken action in relation to providing members with information about their options and provision of financial advice, but even some of these schemes are experiencing significant volumes of members transferring out,”   head of member options at Willis Towers Watson. “This can bring with it a strain on scheme administration and the risk of members making decisions which may not be in their best interests. Where a pension scheme is more proactive in terms of member communication and the provision of access to impartial financial advice, these risks are better mitigated.”

Willis Towers Watson surveyed leading firms of financial advisers and combined this with its own experience to find out what more than 200,000 DB members in 400 schemes have chosen to do in the three years since April 2015 when offered access to flexibility and impartial financial advice paid for by the pension scheme.

Key findings from the research include:

  • The proportion of members transferring out of their DB plan having spoken to an impartial financial adviser varies significantly and is based on various interacting influencing factors.
  • Most plans experienced 20% to 30% of members ages 55 and older transferring out of their DB pension plan when informed of the option.
  • There is a clear pattern emerging which sees more people who transfer choosing a combination of products to meet income needs in retirement.
  • In the past year, 10% of those who transferred bought an annuity (down from 43% the previous year), 1% took their funds as cash and 89% chose to take their funds over time through drawdown or a combination of drawdown and other options.
  • 33% of pensioners offered a PIE option accepted the offer, similar to 35% in the previous year.

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