Five essential elements of any at-retirement strategy
With the advent of auto-enrolment and freedom and choice, your pension scheme is likely to be the biggest employee benefit investment made by your company and the most recognisable by your people. But just because they know they’re in your pension scheme, it doesn’t mean they have the tools to make the right decisions.
Findings from a survey we carried out on nearly 2,000 employees at pre-retirement age (40–65-year-olds) confirmed our fears; with 30 per cent saying they couldn’t estimate the value of their retirement savings, 49 per cent admitting to having no retirement plan at all and a whopping 65 per cent having no idea what the term ‘Flexible Access Drawdown’ means, perhaps the talk of a pensions time bomb is not being greatly exaggerated.
Indeed the gap between expectation and reality when it comes to retirement savings is a real societal concern. There are millions of people who are approaching retirement and relying too heavily on inadequate pension pots to fund their later years. Scheme members and employees are potentially sleepwalking into a retirement they cannot afford. Creating a robust at-retirement strategy for your business, employees and members has never been more important.
So, set against a backdrop of the majority of middle-aged British people looking to enter their retirement with inadequate savings and little understanding of what is required to fund their lifestyle, we’ve been giving some serious thought as to how you can better support your employees in making better financial decisions.
Here are my five essential elements to include when thinking about your ‘at-retirement’ strategy.
1. Personalised engagement
To make your strategy coherent, you first need to understand how your employees feel about their finances and where they need support. When looking at a framework to support your people, it’s most useful to talk to them directly and to understand what some of their day-to-day challenges are. Then you can appreciate how to structure a framework to communicate with and support them.
We recommend that our clients undertake a financial wellness survey, which is designed to provide some important insights needed to formulate an effective plan and strategy. In addition, such a survey can provide a tangible wellness score which will allow a benchmark to measure progress against your actions in the future, and allows you to compare against others doing a great job in financial wellness.
Our research suggests that those aged 40–65 want more financial education and guidance and they would like to see this coming from their employer who they see as a trusted source of financial information. Education can be provided in a number of ways and can be shaped – partially from the results of a financial wellness survey – to align with the most appropriate and effective methods of communication for your employee demographic.
Education can be delivered in-house by your internal HR or pensions team, if you have the resource, or potentially by your scheme provider if they have an ‘at-retirement’ service. This could consist of onsite workshops and/or online education tools for your members to access. Increased knowledge will empower your employees and members, giving them the confidence to make informed decisions at the point of retirement.
Provision of an enhanced pension guidance service either through your provider or a third party. Such services are designed to help employees engage with their pension savings in a simple cost-effective way. Look for a service that includes discussing; investment risk criteria, income options, retirement needs/expectations and provides projections of at-retirement savings.
Since the introduction of pensions freedoms, a great onus has been placed on the employer to provide advice to employees when it comes to accessing their pension savings. Let us assume one of your employees has an entitlement from a legacy defined benefits scheme, either from your company or a previous employer. If the transfer value from that arrangement is in excess of £30,000 your employee has to take regulatory advice in order to move their funds to your plan, should they wish to access their funds flexibly.
Advice can be costly for the individual and may not be required in all circumstances where good guidance has been provided, however you may wish to put in place a facility for company funded or self-funded financial advice via a recommended third party.
5. Ongoing support
Providing on-going support is key to the success of your strategy. Creating a regular channel of communication either online or face-to-face – in the form of pop-up workshops and/or one-to-one clinics – will encourage open discussion and challenge pre-conceived ideas and thinking. Better informed individuals will make better informed decisions, which have the potential to make a huge personal and financial difference for the better.
The author is Richard Williams, director and head of pension decision service at JLT Employee Benefits.
This article was provided by JLT Employee Benefits.
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