Nearly 500 conference delegates in five locations across the UK were asked to select their preferred options for using surplus for member distribution, on the basis that the share between sponsor and members had already been agreed. Delegates had the opportunity to select multiple answers from 13 options – including one of objecting to the principle of any surplus being used directly for members.
Key findings were:
36 percent favoured a top-up to defined contribution (DC) pots;
34 percent expressed interest in the options of providing cash lump sums (using the incoming additional flexibility indicated by the Government);
33 percent selected the provision of a discretionary pension increases to all members, with
21 percent selected targeting the increases to those with pre-1997 pension.
24 percent would look at the benefit structure and target the surplus initially at those who received the worst benefits.
24 percent selected providing additional member support or improving options and terms at retirement.
Paul Heaney, partner at Aon, said: “Aon’s annual series of pension conferences always offers a chance to gain insights from across the UK’s pensions industry. This year, the split of responses to our question on surplus distribution from a member perspective was very telling. The range of views reflects both the differing situations of schemes and their coming to terms with what for many is the relatively new opportunity of sharing surplus assets with members.
“The options of using surplus to enhance DC pots and cash lump sums were the most popular options. This shows that the new rules on allowing cash lump sums primarily to pensioners, has a broad appeal and a DC contribution could complement this to achieve something comparable for non-pensioners.”
Paul Heaney continued: “Many schemes do not provide inflationary increases on pensions built up prior to April 1997 - and using surplus to provide some protection to members with these benefits is highly topical. However, the polling suggests that more delegates would look at the full benefit structure first in order to consider which groups were worst off, before landing on a pre-1997 pension increase.
“Of course, there’s more to sharing surplus with members than direct benefit improvement. That’s reflected in delegates showing considerable interest in the member experience and terms available, especially around retirement.”
Nick Coates, head of member distributions for Aon, said: “It's also important to bear in mind that the three most popular approaches from our poll aren't necessarily mutually exclusive. We are working with schemes and trustees that are looking to use multiple options in their approach as a way of targeting value at different demographic groups within their schemes.
“Ultimately there's no single right answer – which means the way trustees consider the issue will be important. They need to analyse the impact of the options across distinct groups of members and then take a decision from a position of clear information. Documenting the way they reached that outcome and the rationale behind it, will ensure that they have a robust framework to refer to in case of any future challenge.”
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