Is AAF fit for today? What should Trustees be considering?
Is AAF fit for today? What should Trustees be considering? AAF 01/20 reports began appearing
Complexity to Consistency: Trustee Role in Helping Pension Scheme Members with Retirement Planning
As pension trustees, we always focus on providing good outcomes for members. As the pensions world evolves from Defined Benefit (DB) structures to Defined Contribution (DC) and beyond, we increasingly see members with a mix of pension benefits. And with changes to the pension age, particularly the State Pension Age, members can now have benefits payable from various places.
During a working lifetime, there is a focus on steady and regular incomes to support budget planning, so why is it so complicated when pension scheme members come to retire?
Members are often encouraged to consolidate their Defined Contribution funds and use these combined funds to purchase a pension income through an annuity or drawdown funds as required, subject to their relevant tax position.
However, this is not always straightforward, nor is it always the best idea. In addition, any decisions regarding their DC funds must be considered alongside any DB benefits available.
Even as a Professional Trustee, I often feel a little helpless when it comes to individual retirement guidance because we don’t, and nor should we be expected to, know each member’s circumstances. However, maybe as Trustees, there is still something we can do to help members with their retirement planning…
Bridging Pensions
Some DB schemes have a lesser-known power to pay a “bridging” pension. This is a pension paid for only a short period of time, say 3-7 years. This could enable our members to receive more income from one scheme for a short term while waiting for other pensions, such as the State Pension, to come into payment. This can help an individual member with their budget planning and smooth out their retirement journey.
How do I add value as a Professional Trustee?
Having identified the possibility, the first action is to check the Scheme Rules to see if there is an option for retiring members to take a bridging pension. This could appear as part of the early retirement rule, an “options on retirement” section, or a separate “flexible” retirement option.
Whatever the Scheme Rules allow, focused communication with members is always essential. We could update members as part of ongoing newsletters or as part of the retirement process, perhaps in warm-up letters sent as soon as such benefits could be paid or simply as part of the standard retirement pack.
If bridging/flexibility isn’t an option, then we can still make it clear to members that they don’t have to take other pensions (e.g., DC) for life. For example, they could deliberately draw down a DC pot over only a few years before their DB and State Pensions kick in.
We always remind members to seek quality financial advice. We can even consider offering members access to a trustee-vetted IFA who can advise them on their DB pensions. It is also worth reminding members to consider their partners when setting up their pensions, as most schemes offer flexibility on the amount of the dependant’s pension payable.
Whilst the above sounds complicated, it could lead to a better retirement for some members from an earlier date than they thought possible. As a proactive professional pension trustee, Pi Partnership can help ensure the best outcome for pension scheme members in a focused and cost-efficient manner. Contact Pi Partnership now at 020 8879 6500 or at enquiries@pipg.co.uk to learn more about how we can help your pension scheme.
Alternatively, click here to find out more about our trustee executive services.
About Sarah Marshall
Sarah Marshall is a Fellow of the Institute and Faculty of Actuaries who now focuses on providing professional trustee services. She is an Accredited Trustee through the Association of Professional Pension Trustees and is also a Council Member. Sarah now acts as Chair, Co- and Sole Trustee to several Defined Benefit and Contribution schemes. Her combination of technical knowledge and pragmatic approach adds value to trustee boards and specialist project work.
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