Third of schemes using GMP to improve member options

Aon’s Member Options Survey 2022, which polled respondents from more than 300 UK defined benefit schemes, showed that the decision to increase member support at retirement through GMP equalisation is being made despite the method chosen to do so.

According to Kelly Hurren, partner and head of member options at Aon, many schemes that had been planning to act in this area are also separately in the process of tackling GMP equalisation, “and so, unsurprisingly, we are seeing schemes recognise the efficiencies of bringing actions in these two areas together and reviewing member options and support at the same time”.

She noted that although conversion — converting the GMP into a regular pension benefit — is often seen as the natural fit with approaches such as pension increase exchange or bridging pension options, there are also schemes using the “dual records” method.

This sees schemes carrying out checks at every pension increase, so the amount received by the member is the same when compared with a member of the opposite sex — which are taking “the opportunity to consider their ‘at retirement’ communication strategy and support to members”.

“This includes providing access to an independent financial adviser, which helps inform better retirement decisions,” Hurren said.

She noted that “it makes sense for trustees to make the most of the opportunity to increase the value of their GMP equalisation project”.

“Aside from the efficiencies of making these changes at the same time — given that retirement processes need to be updated for GMPs anyway — this combined approach also brings value to members through additional choices and understanding, in what could otherwise be viewed as just a compliance exercise.”

Elsewhere, the research showed that the trend of schemes providing members with more support with their retirement decisions continues to rise consistently since 2018.

Of the schemes surveyed, 32 per cent provide (or shortly plan to provide) additional support to members through online modellers and/or independent financial advice.

Where IFA support is provided, the majority of schemes (67 per cent) provide fully paid-for advice.

Hurren noted that compared with 2020, there has also been a small shift towards advice being paid for solely by the trustee or shared in some way between the trustee and the sponsor.

“While this is likely to achieve the highest engagement from members, it’s not something that’s affordable for all schemes,” she said.

Twenty-five per cent of schemes provide members with a preferred IFA, but with members expected to meet the cost, albeit at a reduced rate because the scheme has paid for the set-up and negotiated lower fees on their behalf, she added.

“Reassuringly, we found that almost 90 per cent of schemes plan to review their appointed IFA regularly, and of these schemes 40 per cent have a governance structure in place to do this annually.”

Hurren stressed that this practice is consistent with guidance released by the Pensions Ombudsman in March 2021, “which stated that schemes should have a mechanism in place to confirm that the IFA remains appropriate for the scheme after appointment”.

“The Covid-19 pandemic and current high levels of inflation have increased member demand for IFA support, and we expect this to continue through the next two years as members navigate new forms of volatility,” she said.