19 Mar 2024

How employers can support changing retirement plans

Economic turmoil has left many businesses in the dark about when their workers might be planning to leave

Planning for a financially secure, healthy and fulfilling retirement should be in most people’s long term plans.

And while retirement is an important goal for individuals, supporting positive and smooth transitions is also vital for organisations to aid succession, and support recruitment and people planning.

With the rise in defined contribution (DC) pensions, and now that retirement decisions lie solely in the hands of each individual, deciding when to retire is no longer at a fixed age and instead comes when individuals feel confident they can afford to retire.

There are now more people in the UK with DC pensions than defined benefit (DB) pensions, with more than 15.6 million saving into DC pensions compared with 1 million in DB schemes.

Even for those aged 50 to 59, and so in the final countdown to retirement, more than half have DC pensions, compared with only 43% with a DB pension, and 17% with both.

Unlike DB pensions, DC pension values are directly linked to the market, moving in line with the performance of the underlying investments in which the savings are held.

Affordability factor

Therefore, because affordability is the starting point for most people when deciding a retirement date, and with more people now dependent on DC pensions for some or all of their pensions, it is completely understandable that when markets are uncertain, or suffer significant drops, retirement plans will change.

The last few years of financial turbulence and uncertainty has presented retirement practices with further challenges and given the opportunity to see how employees react.

Recent YouGov research shows the extent of these changed retirement behaviours and the impact already being felt by their employers:

35% of employees aged 55+ have changed their retirement date and a further 9% are uncertain and anxious
27% of those aged 55+ say their retirement plans are not on track, with another 9% not knowing where they stand and a further 7% having no retirement plan
41% of those aged 45+ have ‘being able to afford to retire’ as their biggest financial concern
38% of all employees are not confident they can afford to retire when they want to
45% of companies have seen changes in retirement behaviours since 2020

Sleeping giant

Given the challenges experienced in the UK over the last few years and ongoing economic uncertainty, many of those approaching retirement are likely to have revisited their retirement plans, with significant numbers choosing to wait for more stability or indeed to defer retirement.

While these changes will be known by the individuals themselves, at organisation level, this effect may be something of a sleeping giant.

Since the abolition of the default retirement age this level of deferred retirement, and the knock-on effect for companies, is going under the radar.

In a recent REBA members’ workshop discussing the support for retirement, three key themes emerged:

The difficulties organisations face in opening the ‘retirement conversation’ with colleagues
The benefits of retaining experienced staff while accepting the need to have frameworks and support available to accommodate their desire to alter their working arrangements
Despite the current support in place for retirees (mainly provided by pension providers), these changed retirement behaviours are still occurring, so what else is needed?

The YouGov research shines a light to help answer some of these concerns. Firstly, the most valuable thing to help employees to decide their retirement date is to have certainty about when they could afford to retire (65% of 44-54 years old and 62% of those aged 55+).

Secondly, it is to see the value of their DC pensions (and other savings) recover the losses experienced in recent years.

Supporting all employees to save for, plan and retire well is critical to employee engagement, people development, recruitment and succession planning.

For organisations looking to provide support to those in the countdown to their retirement, more will need to be done to give employees confidence and certainty around the affordability of retirement, as well as equipping them to assess how DC pensions and other savings can be used to provide financial security in retirement, even during times of market volatility.

Close Brothers provides a range of services to help organisations to support their people to retire well.