The growing importance of member service through buy-ins

Consultancy LCP and professional trustee firm Law Debenture have worked together on a series of articles on the importance of the experience of defined benefit (DB) scheme members during a bulk annuity transaction, such as a buy-in.

Member services have increased in importance due to the large number of deferred members that are now typically included in bulk annuities. Their inclusion means insurance companies need to be able to support people as they decide how to withdraw their retirement savings.

Buy-in transactions can be periods of uncertainty, LCP and Law Debenture said, as while very little changes initially, the significant activity involved in such a transaction can lead to slower or reduced services to members. “This can create member noise and dissatisfaction and tarnish the good news of the increased benefit security that a buy-in typically brings,” the firms said.

“Without clear contractual commitments and transparency, there is a risk that as buy-in demand declines, focus and investment could fall away.”

Lynne Rawcliffe, Law Debenture

This reflects recent research from Standard Life, which found that member confidence weakens sharply during periods of change, such as a buyout. The research was based on a survey of 1,000 DB members, 92% of whom said they would have some concerns if their scheme moved to buyout, largely due to uncertainty over who would be responsible for their benefits and whether their retirement plans would remain on track.

Common, comparable standards needed

LCP and Law Debenture have urged insurers to work with trustees and bulk annuity advisers on common standards for service reporting to help trustee boards compare bulk annuity providers. They said that, while member outcomes have long been a focus for trustee boards and insurance providers, “assessing what ‘good’ looks like remains a challenge”.

Katie North‑Walker, a senior consultant at LCP and member experience specialist, said: “Financial strength will always be important when selecting an insurer, but price is no longer the sole determinant. Trustees increasingly want confidence that their members will be well-treated during the buy-in phase and long after wind‑up.

“As scrutiny of member experience grows, so too does the need for more consistent reporting and clearer information about what members can really expect once their benefits are administered by an insurer. As regulation now also focuses on the outcome for insurers’ policyholders, there is a real opportunity for trustees and advisers to seek and act on information, to safeguard member experience.”

Lynne Rawcliffe, trustee director at Law Debenture, added: “Following buyout, insurers can in some cases offer stronger member services than individual schemes, including clearer communications and access to digital platforms.

“However, without clear contractual commitments and transparency, there is a risk that as buy-in demand declines, focus and investment could fall away – echoing the slow experience many face with legacy AVC arrangements.”

The firms also highlighted issues such as the Financial Conduct Authority’s Consumer Duty requirements, which apply to insurance companies. They warned that some trustee boards “struggle to understand how these rules translate into day-to-day improvements for members, in particular after buyout”.