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Why employers need to go one step beyond with pensions
For the last decade, employers have had a legal obligation to put certain staff into a workplace pension scheme and contribute towards it. Automatic enrolment (AE) has been a huge policy success, with a 10-fold increase since 2012 in the number of members of defined contribution pensions to more than 20 million.
Employers often offer more than the statutory minimum contribution of 3% of salary, with many providing extra help on top such as contribution matching and salary sacrifice.
But providing employees with a good company pension should not be considered the end of the story – it’s really just the start.
A pension is a tool, a better way to try to achieve an objective. To successfully attain that objective requires handling the tool with some knowledge and skill.
No room for complacency
While the AE rules have encouraged more people to save, they have left questions about whether those contribution rates will be enough.
And although a good company pension is tangible evidence of a company’s commitment to its workforce, employees often still feel ill-prepared for retirement.
This can be for myriad reasons. They may have started their pension saving relatively late or been self-employed, or not been in a position to save sufficiently due to periods of unemployment, self-employment or bringing up a family.
It’s also because answering the question ‘how much pension do I need?’ can be pretty tricky.
Read the financial runes
To know if they are on track for a comfortable retirement involves aggregating pensions, factoring in the state pensions and other investments and taking a view of future returns and inflation.
They know that the pension is a valuable tool, but don’t necessarily have the knowledge or confidence to use it to deliver the outcome they want. They read the annual statements but find it hard to put those figures into the context of what it means for their later lives.
In turn that produces stress and anxiety than can impact on their performance at work in terms of disrupting productivity and increasing absenteeism.
Research for the Department for Work and Pensions found 36% of 50-54 year olds and 28% of 55-59 year olds had no idea how much income they would need in retirement.
Filling the advice gap
An obvious solution is turn to a professional financial adviser who can take a holistic view of their client’s financial position, take time to understand their retirement aspirations, make recommendations about how to achieve those goals and conduct reviews to keep them on track.
But this kind of ongoing advice is often seen as being for the wealthy rather than for the average worker who is more likely to be walking a financial tightrope between current spending and saving for the future.
Finding cost-effective ways to fill the advice gap has become a holy grail in UK financial services. Employers are in prime position through financial wellness programmes to make the maximum impact in the shortest space of time. They can make services available that help employees better understand and prepare for their futures.
Most people start to switch on to retirement from their mid-40s. This is the perfect time to start seriously reviewing if they are on track for the retirement they want because there is still time to make changes.
Never too early
HUB Group’s Pension Buddy service, for example, targets this time of life, helping people envisage how their future retirement is shaping up. For those closer to accessing their retirement benefits, people can use HUB’s Destination Retirement, a digital service where people can progress at their own pace.
Most importantly they can review scenarios and how their plans might adapt depending on their actions – such as saving more into their pension or retiring earlier or later.
This can help remove financial anxiety and boost employees’ confidence and feeling of wellbeing in the short-term while helping them achieve the later life they desire.
Offering a workplace pension gives people a tool to build up funds for a satisfying retirement. It’s only by helping them understand how to make the best of the opportunity which will make that retirement a reality.
Supplied by REBA Associate Member, HUB Financial Solutions
We are totally focussed on finding the right financial solutions for people approaching, or in, retirement. We don’t do anything else. Our purpose is to help people achieve a better later life.
