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14 Mar 2018
by Anish Rav

Why employers must help their staff to start thinking about retirement

If on the day you plan to retire you discovered you had not saved anywhere near enough to enjoy the kind of retirement you hoped for, what would you do?

If on the day you plan to retire you discovered you had not saved anywhere near enough to enjoy the kind of retirement you hoped for, what would you do? E521-1520349588_WhyemployersmusthelpMAIN.jpg

We asked employees this and 51% said they would switch to part-time work so that they were part-retired and part-working and 37% of employees said they would put back their retirement and try to save more.

Clearly employees don’t want to compromise their retirement – but what they decide could have a big impact on their employers as well as the individuals themselves.

This could impact a significant number of UK employers who have employees they had anticipated would retire at a set date but who decide to stick around a bit longer (the effect of this could be positive as well as negative).

Being able to make plans for what their future workforce looks like will mean that employers will need to better understand whether their employees want to – or have to – work beyond a notional retirement date.  

Asking in advance may not be enough

It means that if employers want to get a clearer idea simply asking people in advance may not be enough. Pensions and retirement will need to become part of the conversation far earlier in the process.

And the earlier these types of communication happen, the more time employees will give themselves to be able to alter course if need be. It will also remove the ‘employer planning gap’ that currently exists, allowing businesses to make resourcing plans with far more certainty.

Is this even likely? Well, towards the end of 2017, the Department for Work and Pensions published a report and found that 12 million workers were currently under-saving for retirement. But these undersavers are actually not low earners – on the contrary; more than half of undersavers were earning over £34,500 a year in the run-up to retirement.

Our research also found that people were approaching retirement with an unrealistic view as to how long they would need to fund for. We asked employees to what age they thought they would live. We then compared individual responses and applied actuarial mortality calculations to chart the age people predicted, against the actual probability of reaching a certain age.

What is clear from our research is that most employees significantly underestimated it – by around 15 years!

Even if employees decide to fully retire from the workforce, they may be looking to fund for a far shorter retirement than may actually be required. Our research found that 61% thought that they would be retired for less than 20 years, but in reality this may be closer to 35 years.

In addition, there is significant demand for flexibility in retirement - 56% of employees hoped to be able to change their income as their circumstances changed and 75% were open to the idea of a more phased approach to retirement.

The dangers of underestimating

If employees underestimate their life span – and therefore retirement plans – many could face working well beyond the retirement age they had in mind, or running out of money once they are retired. This has a clear and immediate impact for employers in terms of motivation, health, wellness, succession planning and increased costs.

Employers may, therefore, want to consider the following things when thinking about an ageing workforce:

1) Education and early engagement 

We have a significant education challenge ahead and employers need to start introducing the concept of retirement planning and long-term sustainability to individuals when talking about retirement. Early planning will be crucial to ensure that individuals approach retirement with a clearer picture of what they want and what they can afford, without any surprises.

2) Provide solutions that resonate with people

Our research has indicated that flexibility in retirement is valued by employees around when they take their pension and at what level. If employees want a different kind of retirement then employers should consider how this can be accommodated for the mutual benefit of both parties.

3) Smart scheme design

It’s crucial to have a holistic approach to scheme design, looking at short, medium and long term savings and ensuring that everything from communications to investment strategy reflects the new norm.

4) Embrace the changing workplace

Having multi generations in the workplace clearly has its advantages. Employers need to create an effective framework that accommodates this, including the overall impact on wider benefits, working practices, succession planning, culture and costs.

So the questions that employers are now having to ask are: How can I provide the flexibility for employees to transition into part-time work at retirement age, and how do I accommodate the resulting wider generational spread in the workforce?

Anish Rav, is head of DC strategy and proposition at Capita Employee Solutions. 

This article was provided by Capita Employee Solutions.

 

 

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