US-based media company Thomson Reuters has opted to provide in-scheme flexi-access drawdown to UK members in response to pension freedoms, bucking the trend for occupational trust-based scheme offerings in the new environment.
The business information company will be in a minority of employers choosing to facilitate this option for members.
Nearly two-thirds (59 per cent) of trust-based schemes responding to consultancy Willis Towers Watson’s 2015 Pension Flexibility Survey said they would not offer drawdown to members.
Just over a quarter (27 per cent) plan to offer the option via a broker or provider, and only 6 per cent will offer drawdown or flexi-access drawdown funds from within their schemes.
From a cost point of view we don’t see any ongoing additional employer costs
Matthew Webb, Thomson Reuters
Speaking at an event at the Pensions and Lifetime Savings Association this week, Tim Gosling, PLSA DC policy lead, said apart from a few “pioneers” many schemes have held off taking action and are “waiting to see how things unfold”.
In-scheme drawdown
Trustees at Thomson Reuters chose to implement an in-scheme flexi-access drawdown option for members after analysis of the scheme membership projected the majority of members would accumulate funds of between £100,000 and £500,000.
Matthew Webb, head of international benefits at Thomson Reuters, told delegates the pension freedoms had coincided with a wider review of the company values at the start of 2014, which proved “instrumental” in guiding the response to the new freedoms.
“It was an opportunity to show innovation”, said Webb, emphasising three main benefits to providing drawdown flexibilities in-scheme – cost, continuity and convenience.
Working with the scheme’s existing third-party administrator, trustees and a designated working party negotiated a one-off initial payment for members, with a subsequent flat-rate payment on an annual basis.
Webb said the in-house rate was a “fair deal” for members, both in terms of cost and convenience.
“We know how much apathy reigns – members don’t like making decisions,” said Webb, adding that the in-house offering meant members did not have to leave the scheme and hunt for a solution in the retail market.
Administrative complexity is often cited as a barrier to offering an in-scheme drawdown option, but Webb said this was something that could be overcome.
“From a cost point of view we don’t see any ongoing additional employer costs,” he said, adding that members’ post-retirement relationships would be largely with trustees rather than the company.
Investment and education review
The shift to offering drawdown has required a review of the asset mix in the scheme’s default strategy, alongside a broader restructuring of member communications.
Trustees took the decision not to re-risk members already mid-way through the scheme’s lifestyle protection strategy, choosing instead to communicate with members who may opt to take drawdown.
Webb said the company aimed to develop an education strategy to bring UK employees up to speed on drawdown arrangements, on a par with American employees and a senior management team well-versed in drawdown options available under so-called 401k arrangements, a US version of DC schemes.
Aiming to raise awareness and engagement levels, the company has started sending birthday cards to employees turning 50 – well ahead of retirement and age 55, when members can now start to access their savings – encouraging them to start thinking about their income in retirement.
Alongside this targeted approach, the company has worked with its TPA and a financial education provider to deliver guidance seminars for employees.
Following the seminar, employees can opt to have a one-to-one follow-up session. Members have the option to pay for formal financial advice, but this is their decision, said Webb.
Employees also have access to online modelling tools, which allow them to monitor their pot size and progress on an ongoing basis.
“The feedback from members has been pretty positive,” said Webb. “From a company point of view we want to provide education but certainly not advice.”
Darren Philp, director of policy at mastertrust The People’s Pension, said large employers who care about pensions will commit significant resources to implementing arrangements to the benefit of members, but the same cannot be said for smaller, resource-restricted companies.
He said there was a need for solutions to cater for smaller schemes.
“The challenge is how we can develop solutions that don’t just help the few but help the masses,” he said.
