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Using bridging income options to help your members and reduce risk

Using bridging income options to help your members and reduce risk

31 Aug 2021

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At a glance

Due to recent and ongoing increases in the State Pension Age, most members draw their scheme benefits before they can access their state pension

As a result, members can receive significantly less income in the early years of their retirement, often when they want and need it the most

To bridge the gap, members may be able to re-shape their pension benefits to provide more income in those early years

This re-shaping can be done within the pension scheme, often known as a ‘Bridging Pension Option’ (BPO)

A new alternative option, ‘Bridging Income Pots’ (BIPs), allows members to do this flexibly outside the scheme instead. Members transfer a portion of their benefits into a flexible pot to ‘draw down’ in the early years of retirement

For a typical member retiring at age 60, BIPs could result in the member receiving around 10% more income over their lifetime, compared to traditional BPOs

The need for bridging income

Advantages of bridging income

Actions employers can take

  1. Review the current options available to see if a bridging income option exists.
  2. Assess whether your members and your strategy could benefit from BIPs.
  3. Engage with your trustees to explore implementing BIPs.
  4. Review your communications to ensure members are receiving all the information they need, in the best way possible, to make informed retirement decisions.

The two options for providing bridging income

Comparing the two options

For further information, please get in touch with Paul Hamilton or Jim Heal or speak to your usual XPS Pensions contact.