How changing retirement paths are affecting pensions strategies
What’s the issue?
Employees are now able to choose when and how they retire, and how they manage their defined contribution savings through annuities, drawdown and cash. But few have a realistic plan for how they want to spend their pension savings until they are close to retirement.
Pensions are not the only methods of saving that might be appropriate for some employees. But getting engagement can be difficult. For example, workplace ISAs are still seen by many employees as part of their personal finances, rather than a workplace benefit. There are also complexities of disentangling workplace ISAs when people move jobs.
What are employers doing about it?
Employers are keeping retirement options open for employees and using tools like the PLSA’s Retirement Living Standards to help people think about what they want.
They’re also balancing their duty of care and liability of risk. For example, by making sure people know they can access discounted advice through a master trust, and by offering lots of education to help people understand their options.
“We don’t have a defined benefit legacy, which creates more flexibility for employees when they retire,” says Jamie Skelding, Head of Reward and Benefit at Ocado. “We sometimes find that people retire, but then ‘unretire’ to do something different and take parts of their pension to support that change.”
Employers are also looking for effective ways of managing multiple pension pots or consolidating pensions.
Jamie Davidson, XVP Reward, Chart Industries, adds: “We found that people were leaving their pensions invested and wanting to go into drawdown. We’ve worked with our provider to redesign our default fund to target drawdown – this was an improvement that we felt we could offer.”
Tips for employers
- Break the ‘financial wellbeing equals pensions’ conversation by checking with your provider for advice on insurances and mortgage support.
- Encourage employees to start saving for pensions as early as possible, but recognise that they will have other financial priorities.
- Help employees know what their goal is – aim for a savings pot at least 10 times their annual salary on retirement.
- Encourage employees of all ages to keep checking on their pension, for example through annual pension statements and online tools. Offer mid-life – or even earlier – ‘financial MOTs’ to employees to help them really understand their retirement prospects and take action.
- Help employees with more varied forms of saving to help them build up financial safety nets or achieve long-term goals, by introducing mixed models of saving.
REBA brought together five senior reward and benefits practitioners with Aviva experts to discuss how employees’ changing paths to retirement will affect their pensions strategies.
