3 reasons why pension advice is becoming more important

As the working population ages, the need for pension and retirement advice in growing. Here’s how businesses can help

By 2050, the UK will need to increase its state pension age to 71 as a result of its ageing population, according to the International Longevity Centre UK.

It has also meant that the need for retirement and pension advice has risen exponentially.

In January, NextWealth and Aegon pubished a joint report Managing Lifetime Wealth: Navigating retirement advice, which found that more than two-thirds (67%) of advisers reported greater demand for retirement advice as savers live longer.

The report also found that higher interest rates and volatile markets, coupled with the ongoing cost-of-living crisis has affected demand, with 58% of advisers suggesting that the economic environment will prompt clients to seek financial advice.

REBA and WEALTH at Work’s Financial Wellbeing Research 2023 found that the current economy is worrying employees when thinking about future retirement plans.

● One in three (33%) working adults think they won’t ever be able to afford to retire at all due to increasing costs
● Eight in 10 (83%) are concerned that the cost-of-living crisis will mean they will have to work longer before retiring to make up for a shortfall in savings

The pension system and the sector can feel like a minefield for employees, with policy changes and an uncertain economy often making long-term planning difficult.

This is why effective pensions advice is becoming - and will continue to be - increasingly important to your ageing workforce.

Here are a few reasons pensions advice will help:

1. Protecting retirement

Typically, throughout their career, employees will have found themselves in default investment funds, contributing to their pension pot in line with an employer’s rules or the government’s minimal level – with few ever having needed to seek financial advice or make major decisions around their pensions.

As workers reach age 55, it’s important they start thinking about their retirement journey, gathering as much information as possible to avoid making choices that could:

● Negatively affect their finances for the rest of their lives
● Delay their retirement, unnecessarily increase their tax bills or lead them to buying inappropriate retirement products

Good pre- and at-retirement choices, made at the right time, can have a huge positive impact for both employees and employer.

The pensions market works to develop solutions to meet the needs of the new generation of workers coming up for retirement - which is why researching pension funds and speaking with an adviser will be vital for workers.

2. Planning for the cost of care

Not everybody goes into a care home. But, for those that do, and who do not receive financial assistance from the government, care home costs are significant.

In fact, they are becoming increasingly unaffordable, with fees now 408% higher than the average state pension, with care home fees now an average of £53,832 per year.

The longer people live, the greater the chances are they we will eventually need some sort of care. Someone turning 65 today has almost a 70% chance of needing some type of long-term care services and support during their remaining years.

With this in mind, it is better to start thinking about – and preparing for – the possibility of paying for care years or even decades before.

Currently there isn’t a cap on how much a person could spend in later life care costs, meaning an 18-month to two-year care bill could cost a care home resident between £100,000 and £150,000.

If an individual has assets and savings, the state likely won’t step in, with people needing to use their own funds to pay for care.

If a person leaves money in a pension pot, their local council won’t count this when they work out how much they can afford to pay for care.

However, once a person has reached their state pension age, their council will assume they are receiving an income.

But if an individual uses their pension flexibly by keeping it invested and taking an income from it, their local council would look at how much they would make if they bought an annuity (a guaranteed income for life).

Depending on how much a person withdraws from their pot, this could be considered income or capital in an assessment defining how much they need to pay towards care.

Accessing pensions as a lump sum is available when you retire. However, employees need to start thinking about access to capital while they are still working.

For example, if you are a carer, there are government benefits available. Similarly, if an employee is being cared for, there are carer benefits available if they are eligible.

Pension is just one cashflow a person can utilise.

Pointing employees towards resources and providers like KareHero that can help them think about the realities of paying for care will be helpful for your ageing workforce.

KareHero can help with the financing and planning of care for the employees themselves, or their loved one, ensuring that carers, and the person they care for, receive the help they need.

3. Private pensions are complex and confusing

Worries about the pace and number of government pensions changes and financial marketplace uncertainty is common for employees thinking about their retirement and pension, with many concerned about their ability to plan effectively longer term.

For those with defined contribution pensions not yet in payment, a particular concern is working out how much they have in their pots and what their choices could mean in terms of income and capital outcomes.

Offering tools and resources to employees will help them make educated decisions.

Companies need to provide financial guidance, education and regulated financial advice to help employees with the realities of pensions and personal finances as they approach retirement. With an ageing workforce, employees need this type of support now more than ever.