Near-retirement checklist: what employers need to cover with those approaching retirement
Many UK companies still don’t take the time to communicate effectively with employees who are nearing or at the point of semi or permanent retirement. Throughout our working careers employers take the time to nurture, develop, pay and promote employees to get the best out of them. However, when employees start to near the end of their full-time career, many employers don’t make the extra effort to ensure that they understand all the options and information available to them.
There are two key areas that are really important to cover with employees who are thinking of stepping down from full-time employment. Their health and their wealth. We want everyone to lead a long, happy, healthy and wealthy retirement for what might end up being a third of their life. Here are some of the most important topics that should be on everyone’s checklist.
Have employees thought about it?
Seems like a daft question, but you’d be surprised just how many employees do not take a long-term view of where their heading towards and what they are going to do when they get there. Planning ahead might involve anything from taking up adrenaline sports to going back to further education. Anyone who replies that they’re going to go on holiday may find themselves very bored very quickly, as you can’t spend a third of your life on holiday. It’s important that any plans they do make involve social groups because research shows this is key to maintaining activity levels and mental stimulation.
Health in retirement
There are many NHS resources available that most people simply do not realise are there. For example, all UK residents are entitled to a free ‘over 40s’ NHS Health Check. It’s pretty comprehensive and if there’s no other reason for taking a health check, at least it might give peace of mind that everything is how it should be and there are no underlying health issues to sort out.
Private medical insurance is usually pretty high on people’s ‘wish list’ but the costs are very high, they should therefore consider having a large ‘excess’ on the policy that will reduce the premiums (just like car insurance). After all, employees will usually be drawing down tax-free cash, so setting aside some of this would help with the cost of medical insurance.
It goes without saying that this topic has been relentlessly communicated to employees of companies across the UK, yet employees still don’t understand it! The idea that you can do what you want, when you want still causes confusion, so laying out people’s options in clear plain English is essential. It is imperative to cover this issue with colleagues approaching age 55 as fraud and financial crime directly aimed at people with access to pension draw down is on the rise, pension scams to date have cost retirees more than £1 billion.
The UK has a pretty complicated tax system, so it’s no surprise that some people give up trying to understand their position before they’ve even started. Generally, if employees are drawing their savings from a defined contribution pension scheme, any money after the tax-free cash will be classed as income and therefore will be taxed.
Helping employees to manage what they take and when is essential to ensure they don’t receive a huge unexpected tax bill. Educating employees while still in work can make a big difference. Using ISA’s to save can lead to ‘topping up’ their pension from a tax-free source and reducing that all important tax bill.
So many employees either forget that they have a state pension or believe that it won’t be worth much so don’t value it. But if they’re on the maximum £164.35 per week, that’s an annual income of £8,546.20. And if the employee and their partner are both receiving this, then their household income would be an extra £17,092.40 a year. So not to be forgotten or undervalued.
Wills and power of attorneys
Historically, in most circumstances, pensions used to die with the individual. Of course, there were spousal pensions and other variations on the theme but essentially, annuities and defined benefit pensions started winding up with the death of the individual. Now though, things are different with individuals managing their own pots. As a result, there might be some money left over, so employees need to make sure it goes to who they want it to go to. Another key consideration is who is going to look after the employee if they have a mental or physical health issue? All these questions can be addressed through wills and powers of attorneys.
If an employee has given you 30 years’ service, it shouldn’t be too much trouble to give them back a half-day or a day to speak to an expert to arrange their affairs. They’ll be healthier and wealthier for it.
The author is Adrian Firth, employee benefits consultant at Mattioli Woods.
This article was provided by Mattioli Woods.
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