Why early education is essential for retiring employees
The 2014 Budget bought with it a whole host of changes for the pension’s world. From April 2015, pension scheme members no longer need to purchase an annuity and have complete freedom to draw down as little or as much of their pensions pot as they wish from age 55.
But this greater freedom carries far greater responsibility - and much higher risk. If individuals choose not to purchase an annuity, which provides a guaranteed income for life, they may outlive their funds and be reliant on whatever state provision is available at the time,and the impact this could have on organisations should not be underestimated. If members access all their pension funds in one go and spend it all,, how many will realise that they may never be able to fully retire? And how many will decide to continue working past age 65 in a part time capacity, whilst drawing a lower income from their pension funds?
It is likely that individuals will look to use a blend of solutions – some immediate cash, some guaranteed income and some income drawdown. All of these options need to be carefully considered to ensure members make the most appropriate decisions for their particular circumstances. Employers and Trustees have a greater responsibility than ever to ensure that their pension scheme members are given access to specialist retirement planning and guidance as early as possible in their approach to retirement.
Why early education is so important
Crucially, members need to be directed towards retirement guidance and planning at an early stage in order that they fully understand all of the options available to them. Only by being aware of the effects of longevity; investment risk and capital preservation and looking at the pros and cons of each retirement income option against these risks can members truly weigh up which solution or blend of solutions are correct for their particular circumstances.
In addition to this, members need to be aware of what their income requirements will be in retirement. How much will they need to retain a minimum standard of living and will they have enough guaranteed income in order to protect this? By understanding this at an early stage, members can take stock of their existing pension savings and take any remedial action that is required, such as tailoring their investments accordingly. For example, members who wish to purchase an annuity may benefit from their pension savings being switched to lifestyle funds to reduce the risk of the fund value dropping; however, this could be counter-productive for those considering drawdown solutions. For Trustees, this early engagement minimises the risk that the member is invested in a default fund that is inappropriate for their needs.
By knowing about the benefits they are entitled to, having the ability to consolidate pension funds and ascertaining eligibility for enhanced annuity rates based on certain medical or lifestyle factors, members may find that they can retire sooner than expected. This can help the business with succession planning as scheme members will be more confident about their future financial security.
Individuals may also have a number of pension arrangements of different benefit types (with different payment options on retirement) and these may be available at different retirement dates. Engaging with members over a number of years and educating them about their options and the key decisions that will have a long-term effect on their financial wellbeing is likely to have a far greater impact than trying to address everything in a single session.
ASPIRE to retire
At ASPIRE to retire, we have always advocated the need for early retirement planning. In 2013, we launched our education and communication portal, iASPIRE, which takes individuals on a journey through their retirement process. We provide comprehensive information covering both the lifestyle and financial aspects of retirement, including all income solutions – tax-free cash, withdrawing further funds as cash, annuity and drawdown options, along with blended solutions. iASPIRE also considers key factors such as provision for dependants; awareness of the effects of improving longevity and inflation over time, income sustainability, investment risk and capacity for loss.
Retirement can be a cultural shift, as people reduce their working hours and have more free time than they have ever had before. Therefore alongside the need to educate about financial requirements, it is also wise to consider their lifestyle plans. iASPIRE covers the lifestyle elements of retirement including flexible and part time work, hobbies and health.
The benefits this early engagement brings are numerous:
- Access to information on iASPIRE as and when needed
- Interactive tools fully immerse individuals in their retirement planning process
- Knowledge is built as they progress through their journey to retirement and beyond, via electronic communications with articles appropriate to their distance from retirement.
- Individuals are not overwhelmed with information or forced to make quick, unprepared decisions
- Individuals have time to take any remedial action concerning their pension savings
- Individuals can contact a dedicated adviser at any time and can choose between our self-select (guidance) or advice service.
- The ASPIRE to retire service adheres to all relevant regulation, including the codes of practice issued by the Association of British Insurers and The Pensions Regulator.
Our portal provides the opportunity to bespoke investment messages and tailor them to be specific to pension scheme needs and selected glidepath strategies.
The freedom and choice regulations have opened up more opportunities for retiring individuals, but it is essential that people use their new found freedom wisely to ensure they can enjoy the retirement they deserve and aspire too.
ASPIRE to retire is part of the Punter Southall Group and offers a high quality service to Employers and Trustees wishing to provide dedicated retirement solutions to their pension scheme members. Engaging members much earlier in their approach to retirement and continuing well into retired life, we offer holistic retirement planning including access to our innovative online retirement portal, iASPIRE.
If you require further information, please contact Stephen Greenstreet on 01227 844550 or firstname.lastname@example.org
ASPIRE to retire is a trading name of PSFM Limited, part of the Punter Southall Group. PSFM Limited is authorised and regulated by the Financial Conduct Authority. FCA Registration No. 137684. Registered office: 11 Strand, London WC2N 5HR. Registered in England and Wales No. 2148740. VAT Registration No. 782601821.
This article was provided by Punter Southall Group
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