Airport operator to offer flexible drawdown from April

MAG, which bills itself as the country's largest UK-owned airport operator, has announced the provision of a flexible new drawdown arrangement that will be made available to members by the time the full pension freedoms come into effect.

“Our strategy is to provide employee flexibility within a robust administration and compliance framework," said reward director Mark Cliff. "We are going to be offering members drawdown within the scheme, with limits… without having to transfer it out elsewhere.”

I expect there will be an option to move on from drawdown into an annuity at a later date – people need to be careful to make sure that option is there

Peter McDonald, PwC

Cliff said he saw the upcoming changes in April as a real opportunity to drive engagement across the workforce, emphasising that members must be empowered to make choices that are right for them. 

“We want to enable them to access options that provide good all-round member experience,” he said.

Working with its provider, the scheme will have access to existing automated processes that provide comprehensive drawdown, where members will be able to specify which funds they wish to access.

The frequency and number of payments will be flexible, offering both one-off and regular payments in the run-up to and after members’ retirement.

Members will be able to keep remaining assets within growth funds while drawing down, rather than being forced to annuitise or hold the remaining funds in cash or fixed interest instruments.

David Piltz, head of trustee services at the scheme's consultancy Buck Consultants, said: “We’ve got the facility in DC administration to pay funds out by transfer, but also have the administrative capability to retain investments within the DC funds.”

Peter McDonald, northern head of human resource services and pensions at consultancy PwC, said he thought the industry had some way to go in this area, and questioned the current provision for continued investment of members’ remaining savings.

He said: “People could smarten up on that and say, ‘Wait a second, what are you doing with my money when I am in decumulation? Are you trying to tell me it’s going to be kept in cash?’”

McDonald said he thought it was important for the industry that drawdown was a success. 

“It’s the last chance for pensions to be good value. Providers make money out of people wanting to invest in pension funds, it’s in their long-term interest that these are good value,” he added.

Comms surge prior to auto-enrolment

MAG employs 4,500 people across four UK airport locations, working in a range of customer service, technical and professional roles. 

While a large number of employees are covered by defined benefit arrangements, the DC scheme has 2,500 members and a little more than £20m in assets. 

From January 2013 the group spent nine months promoting the pre-existing DC scheme, an arrangement under which the employer doubles employee contributions within certain parameters, said Cliff. The employer declined to disclose the contribution levels.

During this period of targeted communication, membership of the scheme increased to 60 per cent from 35 per cent of the workforce. 

The 500 members who were auto-enrolled into the group’s DC section currently pay the statutory minimum contributions.

Access to the more generous contributions of the main DC section remains open to employees, providing they are prepared to increase their contributions.

“If they value that benefit they’ll join the main scheme, if they don’t want to that’s their choice,” said Cliff.

Industry experts are united on the need for clear guidance and saver education ahead of the advent of the full retirement flexibilities.

“I don't think the education piece has really taken off yet. I am... worried there will be people who come in early doors really just because it's popular to try it out,” said McDonald.

“Whereas I expect there will be an option to move on from drawdown into an annuity at a later date, people need to be careful to make sure that option is there,” he added.

Piltz said he thought education needed to start before members were close to retirement age and before the guidance guarantee kicked in. 

"Employers need to engage with their workforce throughout their working lifetime,” he said.