Key pension questions from employees – and how to answer
Employees may consider their employer to be the first point of contact for questions about their workplace pension. And when they enter their 40s or 50s, retirement planning and pensions might be of growing importance to them. While some will be in sound financial health and confident in their future plans, others may be anxious about the prospect of life after work.
Being able to share trustworthy information and confidently point them in the direction of further guidance could be highly appreciated and productive. Here are some key pension questions you might be asked by your employees – and how to answer them.
1. How do pensions work?
If your employees haven’t been paying attention to their pensions, knowing the basics is a good place to start. A key resource to signpost them to is the government’s MoneyHelper service. Pension Wise, meanwhile, offers guidance for over-50s with a defined contribution pension pot.
Make sure you know what percentage of your employees’ taxable salary they pay and how much you contribute as employer. The minimum standard is a total 8% contribution, with at least 3% contributed by the employer – but you might choose to pay in more as a workplace benefit. If an employee wants to increase their contributions, make sure you know how they can do this.
Value of their investments
To show them how their pension fund is allocated, it’s helpful to know where employees can find the fund factsheets and key investor information documents of their pension funds. These can be requested from your workplace pension provider, but they may also be available from within your employees’ pension account.
These documents will offer a breakdown of the assets in which the pension fund is invested.
Employees might want to know how and when they can withdraw their money from their pension. The minimum age at which most pension savers can begin to access their pension is 55. This is increasing to age 57 on 6 April 2028.
Here are some of the main types of options for drawing on a pension:
- Income drawdown – Retirees can take a portion of their pension pot, while keeping the rest invested.
- Annuity – A product that retirees can buy with their pension pot and which guarantees a regular income for their life.
- Lump sum – This option allows the retiree to take a series of lump sums from their pension pot.
Each of the options outlined will have tax and cost implications. For example, employees should usually be able to withdraw a 25% lump sum of their pension tax-free, with the remaining amount subject to tax.
For in-depth detailed advice on their pension options, employees may want to consult a qualified, regulated financial adviser.
2. Is their pension on track?
When your employees start thinking more deeply about their retirement plans, they’re going to want to know if their pension is on track. Only they can know the answer to that, based on what they want their life after work to look like. However, as an employer, you can provide common benchmarks and resources to help them.
One way of helping employees think about what kind of retirement they may want is to encourage them to put together a written retirement plan. This could include considerations like any debts they may want to address before retirement. We have plenty of hints and tips to help get them started.
There are also some general figures your employees may want to keep in mind when forecasting how much they may need to fund their lifestyle in retirement. The Pensions and Lifetime Savings Association guide to retirement living standards is a worthwhile read.
3. Combining pension pots
People will typically work for several different employers over their lifetime. So it’s likely that many of employees will have more than one workplace pension pot. They might be wondering whether it’s worth consolidating those pots into one place.
Combining isn’t right for everyone and will depend on a number of factors. They may lose features, protections, guarantees or other benefits. Employees should ideally look to compare products before combining their pension pots and speak to a financial adviser if they’re unsure.
4. Finding a lost pension
If your employees have had multiple jobs they may have lost track of one or more previous work pensions. Those who want to trace a pension pot they’ve lost track of can use the Department for Work and Pensions’ free Pensions Tracing Service.
To offer more convenient visibility of their pension savings and investments, you may also want to encourage your employees to register to view and manage their pension plan(s) online. All large pension providers should offer this facility.
5. How the state pension works
The state pension is also likely to play a part in helping your employees meet their living expenses as they contemplate life after work.
They may also want tips on applying to draw the new state pension, as it isn’t paid to recipients automatically on a particular date. State pension entitlements are based on National Insurance contributions over the working life.
Support employees with pension basics
Being on hand with the information employees need about their pension will help to show that you value them. It may also help them to feel in control of their financial future, which in turn will help them to continue playing a productive role in your organisation.
For more articles to help you support your employees, visit our Employer Perspectives hub.
In partnership with Aegon
We're one of the UK's top 3 providers of workplace pensions solutions supporting over 10,000 employer schemes.