Sponsor’s Comment: Pension scheme survival kit

Andy Marchant, marketing director at Aegon Life and Pensions, explains that innovative solutions can help pension schemes survive the current market turbulence 

There’s no denying that we’re experiencing the most extraordinary market turbulence in living memory. Every market and every type of investment has been affected, which means everyone’s pension has been affected too. The key to survival and taking better care of your corporate benefits is to have the right provider on board to give you innovative solutions that suit you and your members.

The 2008 figures from the Association of Consulting Actuaries show that around 90% of UK defined benefit (DB) schemes are closed to new entrants and about 50% are now closed to future accrual. But the costs associated with removing the financial burden of a DB plan can be prohibitive for employers and so many are looking to gradually de-risk schemes.

Working with a scheme’s advisers, we offer a range of innovative de-risking propositions to all DB schemes, regardless of size. For example, our Staged Trustee Exit Plan (STEP) involves putting a structured plan in place that gradually secures tranches of member liabilities through phased annuity purchase over a number of years.

STEP helps to control scheme risks by locking in any investment/funding gains and reducing future funding volatility. STEP can include other tools such as asset/liability modelling exercises and a longevity insurance that guarantees the future actuarial basis used to calculate the price of buying out the scheme’s liabilities.

The Pension Confidence Survey 2008 from Alexander Forbes shows that over 44% of members have never reviewed their pension investments, while 2008 NAPF research shows that over 80% of members invest their money in their scheme’s default fund. People’s circumstances, their risk profile and, most importantly, market conditions change.

So it’s crucial that all members, whether in a default fund or not, review their investments regularly to make sure they’re still suitable.

History shows that in periods of volatility, investors tend to make knee-jerk reactions by switching funds or stopping payments into their pension. What they do now could make all the difference in the future. In the current market, effective education about investment and pensions are solutions to engagement.

Solutions that we find very successful include company pension scheme websites, joining packs and ongoing targeted communications.

Online mini training modules, quizzes and calculators are also useful. These easily accessible tools make learning less stressful and help members gauge what they’ve learned.

We empower members to make the right investment choices by giving them access to information and online tools such as ‘My Retirement Planner’. This comprehensive tool helps investors to work out their risk profile, select funds based on this and forecast their pension benefits. It’s the ideal tool to use for deciding where money should be invested and it’s available free on our company pension scheme websites.

To find out more please visit: www.aegon.co.uk/fromdb2dc