How to encourage employees to engage with their pensions early and ease worries about retirement

It‘s vital that employees understand their pensions throughout their working life as well as understanding the choices to be made

Many employees face financial worries at one time or another, and concerns over retirement can be a big part of this. In fact, our research found that 32% of working adults worry about being unable to afford to retire when they want, and 41% know they are not saving enough for a comfortable retirement.

Employees are often ill-prepared for the complex challenges that lie ahead as they approach retirement and many struggle to understand essential information such as tax, inflation risk or how investments and retirement income products even work. Our research found that 89% of pension trustees worry that their scheme members don’t understand the tax implications of accessing their pension and 70% are concerned about a lack of engagement with members at retirement.

It is imperative that employees understand their pensions throughout their working life as well as understanding the choices to be made.

Financial education and guidance

Early pensions engagement is crucial for prosperity in retirement. Many workplaces provide interventions through financial wellbeing programmes that include financial education and guidance which can be segmented by career stage:

Early-career – getting in the savings habit: Auto-enrolment has helped enormously to ensure people are contributing to pensions. However, support is needed to understand what level of income this may generate in retirement and whether contribution levels should be increased – perhaps with additional contributions from the employer. This can be hard when the monthly budget is tight, so broader money management issues may need to be considered too.

Mid-career – staying on course: A mid-career ‘financial MOT’ can help people to see if their pensions and other retirement savings are on target and what to do if they’re not. Topics can include reviewing financial goals as well as starting to understand how income may be generated in retirement and ensuring investments are managed in line with this.

Pre-retirement – retiring well: In the years before retirement, support should be provided to help with planning and understanding retirement income options, clearing debt and maximising pension benefits and other savings in a tax efficient way. Then, around a year or two before retirement, people may also need help to implement their plan, including thinking about their retirement goals, how to generate retirement income, understanding the risks, tax planning and how to seek further guidance and regulated financial advice.

We find that individuals who access such programmes emerge more confident, knowledgeable and more able to make informed decisions about their retirement. It has been no surprise to see significant numbers of members taking action and changing their retirement plans, increasing pension contributions and seeking out regulated advice as a result. For example, about 80% of seminar attendees request a call-back for further guidance or advice following a retirement financial education session.

Face-to-face guidance

While companies may provide information via a website or leaflet, having someone to speak to about pension savings and retirement income options is more engaging. In fact, some of the UK’s leading employers are using either virtual or face-to-face seminars to help their employees. Other methods are also available to support staff, such as interactive tools, videos and animations, and an online ‘Financial Healthcheck’ covering areas such as understanding savings options including pensions and the income options at retirement.

Additionally, one-on-one guidance or financial coaching sessions could be delivered via a video call or the telephone and are particularly useful for those at retirement age as it helps them gain a deeper knowledge about their options. This provision can also help employees decide if they would like further support, such as regulated financial advice.

It is vital that employers take steps to help their workforce take control of their finances, especially when it comes to securing financial security in retirement. This should lead to better outcomes for all.