enhanced annuities and DB schemes

[kasparov]

It seems to be generally accepted that a small number of DB members might be better off transferring out of their DB scheme into DC and then taking an enhanced annuity if they are impaired lives. Presumably they would do this shortly before retiring.

Does this mean actuaries need to estimate how many people would do this? Also the withdrawal of these lives would decrease the average mortality so does the actuary have to allow for this as well?

Also are trustees under any legal or moral obligation to tell members they might be better off transferring out? (If not then not many people would find out about this option).

 

[Stuart Underwood]

Hi kasparov,

Adjusting the assumptions for take up of enhanced annuities - I would guess that historically this has been very uncommon (unless many of the members of the pension scheme are employed in an industry where ill-health is prevalent). However this issue is getting more attention than in the past, so it is hard to know what will happen in the future. In all but the largest schemes I would imagine there is unlikely to be sufficient and relevant past data to be able to estimate future rates with any certainty. As you say the numbers are small.

Trustees' obligations - I'm not aware of any specific legal requirements here (though this would definitely be one where legal advice is needed!), but the trustees should certainly consider their wider duty to consider the best interests of all members.

I hope this helps,

Best wishes
Stuart