Buying out all scheme liabilities and winding up the scheme is often the hardest job a board of trustees will ever be faced with. We hear a number of myths and rumours flying around, from trustees, pensions managers, companies and even consultants who specialise in other areas! 

In this series, we aim to bust those myths and promote a better understanding of the journey to wind up a scheme. The series continues with:

Myth 3: “We’ll get a lot of member complaints if we wind up”

Always remember the human being

With pension scam stories continuing to dominate the financial news, and scams reported to be on the rise in the wake of the pandemic, it’s not surprising that scheme members may feel increasingly anxious about the security of their benefits. Trustees would almost certainly be inundated with queries and complaints if members thought they were losing their hard-earned pension, or thought they’d fallen prey to a fraudulent offer – but this situation can easily be avoided.

Take a strategic approach

Developing a strategy for what and how you will communicate during the various stages of your wind up project is a vital first step to ensuring your scheme members understand the process. And planning the journey you want to take members on can help you to anticipate and address members’ concerns, so you don’t receive the complaints you dread.

There are a number of letters to send during a wind up project, many of which are mandatory requirements. However, the mandatory requirements don’t address how a member may be feeling about their retirement savings moving from their old scheme to an anonymous insurer, and may feel impersonal when addressing something that deeply affects their future security.

Letting members know what’s coming up in advance will help avoid any news coming as a surprise. In our experience, the earlier you start engaging with members, the smoother the process will be. It may also be possible to combine some communications with articles in pension newsletters, for example. And keeping in touch throughout the journey with well-timed, easy to understand and reassuring letters will ensure trustees exercise their duty of care to members, with the added bonus of avoiding excessive queries and complaints.

Share the good news!

Many trustee boards would celebrate being in a position to afford to buyout and wind up their scheme, and rightly so. But as members typically prefer to stick to the status quo in relation to their pensions, it is well worth highlighting that the changes you’re introducing are in fact minor changes and indeed may be good news for them. In normal circumstances their benefits are not being reduced or changed in any way, therefore the only change will be the administrator who manages and pays their pensions. Another benefit will be that an insurer covenant, backed by the Financial Services Compensation Scheme, is typically more secure than a sponsoring employer’s – that’s a real positive outcome for members and so trustees should take advantage of the opportunity to make this point.

Anticipate questions

Crucially it’s important to anticipate concerns members may have about these changes, for example “Will my pension be disrupted? Will it reduce? Will it stop altogether?” may well be someone’s first thoughts when being told their pension is being transferred, in particular where the chosen insurer is not a household name. Requests for information from a member or offers such as winding up lump sums may be worrisome for pensioners on the lookout for scams.

Communications must be informative, but also act to reassure members of any concerns. Starting a letter by positively stating that pension payments won’t be affected and repeating this message, while setting out clearly the purpose of any information requests or offers, will go a long way to alleviating such worries and reducing queries and complaints.