×
First-time login tip: If you're a REBA Member, you'll need to reset your password the first time you login.
11 Jun 2020
by Gill Hibbard

Ways to help employees with big financial decisions in a time of extreme uncertainty

In many ways, it feels as though life has been paused for the last few months. Events and plans cancelled across the board. Businesses, schools and places of worship closed, employees furloughed. Families and loved ones separated indefinitely, with virtual meet-ups and quizzes the new pinnacle of social activity. And all against the grim backdrop of the worst global health crisis for over a century.

D87D-1591731851_WaystohelpemployeesMAIN.jpg

But time, of course, continues to tick by at exactly the same pace it always has. Birthdays, anniversaries and other milestones come and go, just as they did in the ‘old normal’. And life’s big decisions still have to be made, even in these most uncertain times. As the ancient proverb goes: ‘time and tide wait for no (hu)man’.

Planning for the next chapter

Even in ‘normal’ circumstances, for most of us, retirement will involve some of the biggest decisions we’ve ever had to make – certainly when it comes to the financial aspects. You may well have been building your pension savings for 40 or even 50 years by the time you come to access them. Making wise financial choices at this point could not be more important; and the vast majority of people need some help considering – and understanding – their options.

Retirement today is no longer the cliff-edge (and carriage clock) experience it once was. However, the magnitude of our financial decisions at this point remains the same. The pension freedoms have provided us with much-needed flexibility, but the additional complexities and tax considerations they bring shouldn’t be underestimated.

This point is best demonstrated by figures from HMRC: between the tax years 2015/16 and 2018/19 pension freedoms raised £2 billion in taxes – a whopping 66% more than originally estimated, according to the Office for Budget Responsibility’s economic and fiscal outlook report published in March. As at April 2020, the total value of flexible withdrawals from pensions, since the changes were introduced in 2015, had exceeded £35 billion.

It’s safe to say that if everyone accessing their defined contribution (DC) pensions in this timeframe had received appropriate guidance, or advice where needed, HMRC’s take could have been significantly lower. And less tax equals more money for your hard-working employees to use to enjoy their well-earned retirements.

The financial rollercoaster of 2020

As if the health fears, income worries, impact of lockdown and social distancing on our overall wellbeing weren’t enough, 2020 has also delivered a financial rollercoaster. Stock markets across the world plunged in March, and significant volatility remains as they continue their bumpy recovery. In April, the price of oil fell into negative territory for the first time in history. Interest rates have been cut to record lows, with the Bank of England now contemplating negative rates – another historic first. Global unemployment has soared. The economic outlook is, at best, extremely uncertain.

Lifestyling and the importance of targeting the right date

These are the circumstances people reaching retirement are currently facing. Any members who are invested in the default fund of your workplace pension scheme should have been protected from market falls, to at least some degree, by the automatic lifestyling mechanism. Providing they have set the correct retirement age – this is crucial.

The gradual investment de-risking undertaken during the lifestyling process is based entirely on a member’s selected retirement date. If they were hoping to retire significantly earlier or later than your scheme’s ‘standard’, and didn’t update their plan to show this, then their pension may be invested at an inappropriate level of risk. In the worst-case scenario, a member planning to take early retirement, but whose lifestyling wasn’t due to start for a few more years, could have seen large falls in the value of their pension pot just as they were about to access it.

This is one of those vital but often-overlooked pension planning points that is worth highlighting to your employees on a regular basis throughout their membership.

For employees approaching retirement who are worried by falls in the value of their pension, expert support and guidance is even more important. Otherwise you could see members suffering from the double-whammy of crystallising investment losses and paying unnecessary, potentially hefty, tax bills – both penalties that some clear guidance and simple planning could have helped them avoid.

Maximising the return on your investment

Much like the world in general, employers are currently having to deal with an onslaught of new, extra challenges. Furlough schemes, shielded employees, remote working, new health and safety measures, trying to make premises ‘COVID-secure’. At a time when employees are more likely than ever to need wellbeing support, resources and budgets are at their most stretched.

Wherever possible, continuing with your pre-pandemic workplace wellbeing plans and initiatives will deliver huge benefits in the long term. But changes to the type of support you provide, and how you provide it, will no doubt be needed.

Socially-distanced support

Perhaps the cherry on our cake of current challenges – when we need each other the most – is that we must physically keep our distance. Pre and at-retirement support is a clear point in an employee’s financial wellbeing journey, when being able to talk things through with a real human is invaluable. The sheer complexity and importance of the decisions to be made, and the financial implications of different options, mean that expert guidance is essential.

Many employers have already embraced online tools such as Zoom and Teams to aid collaboration and engagement while employees are working remotely. The same approach can be taken with financial wellbeing support. While the requirement for social distancing continues, interactive webinars and video conferencing can replace workplace seminars and face-to-face meetings. Individual guidance sessions can be held over the phone. All of this can be supplemented by online tools and guidance. And remember to make sure you’re making use of any free employee communications and engagement tools available from your workplace pension provider – or any of your other wellbeing schemes.

Today’s challenging circumstances might mean that your delivery and messaging need some adjustments, but you can still help your employees access the support and information they need as they approach retirement. This is the crucial final stage in ensuring your pension spend helps to deliver good member outcomes.

The author is Gill Hibbard, director at Lorica.

This article is provided by Lorica.

Related topics

In partnership with Lorica Workplace

Lorica has one simple aim: to help people develop a healthy relationship with money.

Contact us today