Digital retirement advice services can help employees when it comes to taking pensions
This year’s REBA Employee Wellbeing Congress will focus on ‘total wellbeing’. It’s a timely reminder that the concept of wellbeing is broad. Defined as ‘the state of being comfortable, healthy, or happy’, employee wellbeing covers the overall mental, physical, emotional and financial health of employees.
Even within these classifications, the needs of employees vary. Consider financial wellbeing. Younger employees may be preoccupied with day-to-day money management, repaying university loans and saving towards a home purchase. Over time, they may face financial pressures caused by redundancy, divorce or simply the financial stress of supporting a young family.
Older employees encounter a different kind of financial stress. Earlier in life, short-term financial pressures often take priority over longer-term aims. At some point, this dynamic changes. Managing day-to-day finances become easier and people start to focus on the prospect of a life after work. They start to worry that they may not have saved enough for the future.
They want to know how much they need to live comfortably, when they might reach that target and what action they can take if there’s a shortfall.
When they’re ready, they want to understand how to turn their pension savings into an income for life. This is a challenging question. In fact, no previous generation of retirees will have faced such a bewildering array of choice or considered the possibility of running out of money during retirement. What’s more, our understanding of retirement is becoming more nuanced. We view it less in terms of work or retirement, but rather a combination of work and retirement. A gradual transition that may lead eventually to outright retirement.
Helping employees make informed decisions
The government recognises the need to help employees make informed decisions at this seminal point in their lives. The introduction of Pension Wise in 2015 was an important initiative specifically established to tackle these concerns, but take-up has been less than anticipated and so further action is required.
From 1 June 2022, trustees and pension providers are required to deliver a stronger nudge to guidance when someone wants to access their benefits, or make a transfer to another scheme. This means they must offer to book a Pension Wise guidance appointment. This is a welcome development and should help deliver better outcomes for more people, but it’s not a panacea.
Members may shun the service, they can still choose to opt out, so the initiative won’t reach everyone. It may be too late in the process. At the point they decide to take benefits, they might have made plans and are unwilling to change. Even if decisions are based on imperfect knowledge, behavioural science suggests that people can be reluctant to change their mind. Their inclination is to simply filter any new information to fit with their original decision.
Even if they use Pension Wise, they still have to make their own decisions. Pension Wise provides guidance not advice. The service will explain skilfully the options at retirement. Even so, some people will still struggle to evaluate their choices rationally and may make poor decisions. And remember, retirement isn’t a ‘one and done’ solution. People need help to manage their retirement savings as their circumstances change during their life after work.
The government is aware that more support is needed. Earlier this month, the Department for Work and Pensions opened a consultation to determine what support and information occupational scheme savers expect in the lead up to taking their pension, at the point of access, and as they start to use their savings.
Ultimately, personalised advice is the gold standard. Many people do take advice and more may do so after they utilise the Pension Wise service. The Pension Wise appointment can make people realise that their choices are complex. However, for some people advice may too expensive. They might also have concerns about finding an adviser they can trust. Here’s where scheme trustees, managers and employers can help.
Digital retirement advice services, offered by specialist, reputable organisations, can provide a platform where employees can access professional advice selected by their employer or scheme trustees. Digital solutions (often provided with human help at the end of the phone or web chat) offer retirement advice at a lower cost than traditional face-to-face advice models. And, as circumstances change during retirement, plans can be updated.
The direction of travel is clear. There is a momentum building to ensure people make sound decisions when they access their benefits. Pension schemes are likely to be at the heart of this. Pension Wise guidance, supplemented by digital advice, may prove to be the optimal solution for many people. We’ll be showcasing our financial wellness services at the Employee Wellbeing Congress, including Destination Retirement, our innovative, digital solution.
Drop in and say hello to Adrian Cooper and the team, we’d love to see you.
In partnership with HUB Financial Solutions
We offer a range of investment funds with different levels of risk.