Quietroom – shouldn’t we be asking not telling members about being “bought out”?

Simon Grover of Quietroom has written an  article about communicating buy-out to members (who are about to be bought out). It urges us not to forget the member, but suggests what the member thinks is an afterthought

I am usually onside with Quietroom’s member-centric approach, but over this – I’m not so sure.

Simon starts by considering the importance of member’s data being in order.

Previously, poor data may have simply led to higher pricing by the insurer, making buyout more costly. Now it could really get in the way of a deal as insurers become pickier about what business they choose to write.

As a member of a DB scheme that will probably stop paying me pensions in the next few years, I am rather more interested in my data being right so I get paid the right amount of pension.

So, as well as thinking about buyout data, it is equally important to consider buyout communications. You need an approach that will inform, but also reassure, members that the proposed course of action is in the members’ and scheme’s best interests, and that the scheme isn’t just going for buyout to wash its hands of its members.

And as a member of a DB pension likely to be bought out I would rather be part of a discussion about whether this was a good thing but a well-delivered coup de grace.

If communication is , as we are told, two way, then I would like to have my views heard before being told what has happened was in “my best interests“.

Is buy-out good news?

Here is Simon talking about how to frame to communications to those who are about to be bought out.

Within the pensions industry we know buyout is good news, but we rarely spell that out.

I’m not sure where Simon got this certainty. I suspect it is the same certainty that said LDI was good news and that buying out your pension with an enhanced CETV would be good news. All these things are “good news” if the aim is to rid liabilities from your balance sheet, but – speaking as a pension liability – I’m not sure I agree!

We assume that members will just ‘sense’ this positivity from our neutral, matter-of-fact tone. But if you don’t explicitly say ‘this is good news’ and ‘we are delighted to tell you’ then members will make up their own framing, and this will tend to be negative. They’ll assume it’s bad news.

It may be that buy-out is good news, especially if the alternative is a company beset by cash calls from the pension scheme which prevent it from investing in its future and paying people proper pension contributions into whatever replaced the DB scheme.

But it may not be.  Members may smell a rat and I personally am far from sure that I would be better off having an annuity rather than a scheme pension.

Let’s start with the reason why buy-out is on the table. It assumes that there is a healthy surplus in the scheme that can meet the buy-out premium, pay advisory fees and release the sponsor of further obligations.

Where there is a surplus in the defined benefit, the fate of that surplus should be a matter of great interest to members. Should it be paid to them as extra pension, or to colleagues in a DC scheme as extra contributions or should it be ring-fenced for staff benefits – including salary? If it is simply a windfall for insurers , shareholders and pension advisers, then buy-out may be bad news.

Member best interests?

Testing always produces surprises, and the main surprise this time was to find that members wanted more information, not less.

I do not find it surprising that members are interested in their pension being bought out by an insurer, I am surprised that so little is being made of whether it should be.

The debate, initiated by LCP at a Pension PlayPen coffee morning, focused on when it’s in the best interests of members to be bought out and Steve Hodder and others made a number of observations that suggest that many schemes either won’t or can’t buy-out for the reason that trustees will act on what they see to be the members best interests.

If a trustee has decided that it is in the best interests of a member to be bought out , then that case could and should be put to members, but not as a fait-accompli.

Were a major restructuring of a corporate being put forward, it would likely solicit a vote at a shareholders meeting. While such things usually get shareholder consent, there are occasions when shareholders object and where shareholders are coerced without being given proper information, they are very likely to push back. I don’t think it surprising that members of occupational pension schemes do not behave in the same way.

Simon’s article concludes that the sausage is in the sizzle.

A buyout is a huge and complicated exercise. It is one that should be of positive benefit to members. We need to tell people this, but not forget that they will have a connection with the scheme that may have lasted decades. Thinking early about how schemes can best tell this story will stand them in good stead to deliver a positive member experience.

This paragraph is didactic and is couched in a language that members of defined benefit schemes will find confusing.  On the one hand Quietroom want to “tell the story” but about a “complicated exercise“.  There is something “us and them” about this mix of folksy charm and consultant speak that grates. If buy-out is a “positive benefit”, why do we “need to tell people this”? I have seen many examples of corporate communications that backfire because they aren’t listening to what members actually think. I have also seen groups of members dig in their heels when they think they are being sold a line.

A very obvious example was the communication to the British Steel Pension Scheme Members where it was thought that members would chose between joining the PPF or a new Pension Scheme, they ended up doing neither, deciding to take their benefits away from both.

I am not suggesting that over-selling the benefits of buy-out will lead to another run on the scheme as we saw in Port Talbot or Scunthorpe, but I do suggest that the assumptions behind this article are far from certain and that a much better approach to working out what is best for members is to ask them what they want.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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