Against the backdrop of ongoing inflationary pressures and heightened global uncertainties, the importance of reviewing retirement planning has never been greater for pension scheme members. In response, defined benefit (DB) schemes are assessing the available retirement options, increasingly prioritising flexibility to ensure that members can retire in a manner that better aligns with their specific circumstances.
A notable trend is the growing emphasis on supporting both DB and defined contribution (DC) members as they approach retirement, utilising educational content, guidance (such as webinars) and financial advice. This trend is also now flowing through to the insurance market, where the increase in buy-in transactions that include deferred members has led to an increased focus on the member experience at retirement.
The PIE option continues to maintain its popularity among pensioners. According to the surveyed IFAs, average engagement and take-up rates are respectively around 40% and 20% for bulk offers. In our experience, even higher take-up rates can be observed for at-retirement PIE options.
Despite a slight dip in engagement and take-up rates for bulk offers in 2023, largely attributed to some schemes undertaking “repeat” PIE exercises, pensioners' prior experiences with high inflation meant that market conditions did not significantly affect take-up rates.
With the rise in the State Pension Age, BPOs are gaining traction as a means to facilitate earlier retirement for members. Additionally, schemes are leveraging BPOs to de-risk and accelerate their journey plans.
While members are not mandated to seek financial advice to access ongoing retirement options such as BPOs, there's a noticeable uptick in schemes appointing financial advisers to advise on 'in scheme options' as well as transfers out. Recent take-up rates for BPOs averaged around 45%, albeit with considerable variability influenced by membership profile, communications, and access to advice.
Transfer demand has experienced a slowdown, primarily attributed to the reduction in transfer values. Consequently, there's a heightened demand for flexibility from in-scheme options like PIE and BPOs.
While bulk offers for transfers are less prevalent at present, at-retirement transfers remain a vital option, especially for individuals seeking to capitalise on falling annuity prices or access additional flexibilities. In 2023, average take-up rates for at-retirement transfers remained stable compared to 2022 at approximately 10%, with variability noted across different schemes.
The findings of the WTW DB Member Choice Survey for 2024 underscore the evolving landscape of retirement planning. Key trends such as the sustained popularity of PIE and the rising prominence of BPOs reflect a growing demand for flexible retirement solutions in DB schemes.
As uncertainties persist in the global financial landscape, the importance of tailored financial advice and flexible retirement options cannot be overstated.
