Avon aims to avert mass opt-out with roadshows

The £2.7bn local authority scheme has already sent its members a newsletter detailing the changes and hosted a series of documents explaining them on its website.

Steve McMillan, pensions manager at the fund, said the scheme will go out in person to explain the changes in April, a year before its benefits switch from final salary to career average.

He said: "We will be setting up roadshows with both employers and employees to see as many of the members as we can, to explain the differences and what this will mean for our members."

Schemes that help members understand benefit changes can reduce the amount of people opting out. This will give the member a better chance of reaching an adequate retirement income and protect the assets of the wider fund.

Other local government pension schemes including Greater Manchester Pension Fund and South Yorkshire Pensions Authority are battling to reduce the level of active members opting out.

If enough active members leave, a scheme's cash flow can be severely constrained, threatening its ability to recover deficits or pay out benefits.

Communicating change

Avon has already completed the first round of written communication to members concerning the planned change from final-salary to career-average benefits.

On its website there is a section dedicated to the reform, which is intended to improve the long-term financial viability of public sector pensions.

"We have already sent out to members via a newsletter what the details of the new scheme are expected to be," McMillan said in a Data and Technology for Employee Benefits report by Clear Path Analysis.

"So unless anything changes materially we do not envisage sending any further communication to them until nearer April 2014." 

Local government pension schemes are under pressure to cut costs as much as they can

Barry McKay, Hymans Robertson

But from April, representatives will go out in person to explain the changes to employers and employees. This is due to its concerns members will opt out, or end up with an insufficient retirement income.

The scheme currently operates auto-enrolment irrespective of age or salary and already experiences an opt-out rate of 20 per cent.

McMillan added: "The government is introducing a 50/50 scheme so people can pay half the cost and receive half the benefits.

"[But] we are worried it may reduce the benefits that people will get when they retire."

The fund is also working on improving communication with its employers. As reported by schemeXpert.com in July, it plans to have fully electronic communication in place by mid-2013 in a bid to cut cost.

Schemes that are using roadshows to explain benefit changes need to make sure they provide context for inexperienced savers, according to Greg Thorley, director at Face to Face Consultancy.

He said: "People in the audience [might] not have a clear understanding where retirement planning and their own savings fit in terms of their future.

"To start talking about details of the scheme straightaway tends to fall short."

How to save on communication costs

Other local authority funds are clubbing together to communicate the LGPS changes in a bid to reduce costs.

Barry McKay, a partner at consultancy Hymans Robertson, said a handful of schemes working together to produce this communication could lead to a "significant saving" for each – especially in an environment where the sector is looking to save money wherever possible.

He said: "Local government pension schemes are under pressure to cut costs as much as they can. I am sure communications can be no different in that respect."

Schemes have been waiting to communicate for the details of the change since March 2011, when Lord Hutton's Independent Public Service Pensions Commission released its final report recommending a switch to career-average provision for the public sector. 

Now schemes are focused on making members aware of the impact this change will have on their retirement income, especially where the impact is minimal.

McKay said schemes were using online modellers to allow members to assess the impact on them specifically.

"Members need to understand the changes are not a bad thing, the benefits are still very good," he added.