REBA Inside Track: Pensions and retirement are changing – employers risk being left behind
Each year, REBA has in-depth conversations with hundreds of leading employers, as well as advisers and consultants in our market. From these we glean emerging trends not yet impacting the vast majority of employers, but are coming down the line. This is proving especially true for upcoming changes to the employee path to retirement. Many employers are unaware just how much new and different retirement decisions being made in the years before employees fully leave the workplace will change wider reward, benefits and HR practices.
This is why REBA was delighted to host a round-table discussion with five senior reward and benefits practitioners, together with highly knowledgeable experts from Aviva, to speak on-the-record about this vital challenge.
Before we feel the full impact of swirling employment demographic and skills shifts that will cause a storm of change, incoming government legislation (currently in consultation phase) is going to kick everyone into urgent action.
Expect to see more about pensions legislation through 2024, 2025 and possibly even into 2026. Regardless of which political party wins the next election, those in the know believe there is general consensus to get these new ways of thinking into play. All political parties are well aware of the huge imminent financial cost risk that will hit the state if nothing changes soon.
This urgent risk that the government can see will hit all aspects of society, and especially employers.
First, we are reaching the tipping point where more people will be reaching age 55 after only saving in defined contribution (DC) pension plans (where all the responsibility is on the employee to make sure they save enough through their careers). There will be a dawning realisation of the need to extend employments past projected retirement dates to continue to build pensions savings to achieve affordable retirements.
Second, lifelong learning and flexible careers (with career beaks, sabbaticals, retraining and new careers) are on the rise. The days of working solidly for 40- 50 years then completely retiring will fade, to be replaced by longer working lives and flexible retirements blended with some work.
Third, the size of the working population is in decline because Baby Boomers are retiring, birth rates are falling and there is lower labour market migration from the European Union. No wonder recruitment and retention is such a pressing challenge for employers.
This will lead to employers increasingly focusing on what engages older employees, and how to put in support to help them extend their employment to fill skills gaps. Conversations about retirement routes, decisions to merge pensions pots, taking a lump sum from age 55, income drawdown versus annuities, as well as delaying or taking flexible retirement options will become commonplace. But this won’t be limited to the thinking about the over-50s, all ages are already thinking differently about work as they prepare to have longer working lives.
Which is why, we brought together leading employers and pensions experts to share real-life, current strategic thinking to help other reward and benefits professionals consider how they can rethink retirement within their organisations.