09 Dec 2015

Research: employers have not adapted to pension changes

Employees could be heading towards retirement income disaster, according to the results of a new survey.

The survey results reveal that, when no glide path - the option that helps define the assets held as retirement approaches - is selected by employees, 43% of employers will still default employees to an annuity tracked glide path, despite a significant fall in annuity purchase as a preferred option for employees.

People on towers of coins

The survey was undertaken by Wealth At Work, a provider of financial education, guidance and advice in the workplace, following the pension changes. Its aim was to understand the attitudes and opinions of a range of UK companies in recognising the need to support their employees as they approach and reach retirement

Jonathan Watts-Lay, director, Wealth At Work says the results were worrying: “This is pretty alarming given the significant fall in annuity purchase over the last 18 months. In the new world of freedom and choice in pensions an annuity tracked glide path might not be the most suitable option and it may leave many on an investment route which is not correctly aligned to their retirement plans.

"This could potentially result in a reduced income in retirement, with what may be for some almost disastrous consequences. It is crucial that employers provide financial education about the different glide path options available in order for employees to make appropriate selections to help optimise income at-retirement.”

The survey results also show that only 11% of employers believe their employees are saving enough for their retirement.

Watts-Lay adds: “It is deeply worrying that employers believe that employees are simply just not saving enough. Whilst this is a worrying problem, there are also increasing numbers of employees auto-enrolling at levels which are almost certainly too low to provide sufficient savings for a secure retirement.”

Employees unable to access the new pension flexibilities through their workplace

Survey results reveal over a quarter (26%) of employers do not allow their employees to take money from their pension (from age 55) whilst they are still working for them.

“This is not surprising as employers must be worried about the effects of pension depletion; their employees may not be able to afford to retire when they want to, if they access their pension pots early,” says Watts-Lay.

Additionally, results reveal that almost one third (32%) of employers do not provide access to the new pension flexibilities in their scheme at-retirement.

People on towers of coins He continues: “The fear of employee pension depletion, coupled with the increased cost of administration or simply not having the infrastructure in place to provide full access, is another reason why employers may not be able to provide the new pension flexibilities. But it’s not all bad news as there are providers like us can deliver a full service, from financial education and guidance, supported by regulated advice and then ensuring the appropriate service provision is available to implement all options at retirement – whether that is an annuity, drawdown, a cash withdrawal, or indeed a combination of options over time.”

The survey also found that 40% of employers do not offer their employees financial education around the pension flexibilities at-retirement. “It is essential that employers provide financial education around the pension flexibilities as without this, they could be left vulnerable to making poor decisions," says Watts-Lay. "Professional financial advice following education will further help avoid suffering the consequences of making poorly informed decisions.”

This article was provided by Wealth At Work.