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07 Sep 2022

Why helping staff retire early may improve retention

Giving employees more knowledge about saving for retirement can mean less of a rush to leave in later life

Why helping staff to retire early may mean you keep them longer.jpg 1

 

It may seem counterproductive, but by giving employees the tools to retire earlier, you could actually persuade them to stay on for longer. This means that employers continue to benefit from the skills and experience of older employees, while the employee feels valued and supported.

Lynne Foulds, a financial planner at Close Brothers, says that when it comes to retirement, the more information and resources are given to staff, the better. “Staff really value that information and having more flexibility when it comes to retiring, perhaps on a part-time basis so they can wind down slowly,” she says.

Many people have delayed retiring since the start of the Covid-19 pandemic over financial worries. In a study by Close Brothers, 41% of UK employees said they had suffered anxiety about their finances, compared with how they felt before the pandemic.

Anxiety about money

The ‘Changing trends of financial wellbeing’ research, carried out in May 2020, also showed that women felt more anxious about money than men. While 34% of male workers noted an increase in anxiety, almost half (44%) of women said they were feeling worried.

“Many of our clients have put off retirement since the start of the pandemic, but they have also realised they can work more flexibly, more remotely and in a way that fits in better with their lifestyle,” Foulds says.

The current cost of living crisis, with 87% of people reporting a rise in day-to-day outgoings in the latest figures from the Office for National Statistics (ONS), has also been a major contributing factor. The ONS found that 43% of people were struggling to pay their energy bills in March 2022 and more than one-quarter (17%) had turned to loans or borrowing on credit cards to make ends meet.

“While the rising cost of living is almost certainly a factor in people delaying retirement, and while there will be some people who cannot afford to retire, there have also been some advantages for employers when it comes to retaining staff for longer,” says Foulds.

However, she acknowledges that some people have enjoyed being at home and having extra time with their family, which has made them want to retire earlier.

Changes in how pensions work

Whichever route an individual decides to take, providing older workers with the right guidance, whether through webinars, leaflets, workshops or one-to-one consultations, can help them work out how and when they can retire.

Foulds points out that the changes in pensions, from defined benefits (DB) and final salary schemes to defined contributions (DC), has also altered people’s outlook. The

introduction of the Pension Freedoms Act in April 2015 also made a big difference. Under the revised rules, those aged over 55 no longer need to purchase an annuity to access their pension income. Instead, they can access their pension savings as and when they want.

“We no longer have the luxury of a gold-plated pension scheme paying out for life after we retire, so many people are looking to continue working part-time and also relying on other investments,” says Foulds. “People largely take a more blended and balanced approach now.”

Many favour a phased retirement, where they continue to work on a part-time basis while drawing income from other sources. This gives them more choice and flexibility to continue working in a way that suits them.

“Before the Pension Freedom rules were changed, people had to buy an annuity by the age of 75. But now, because you are no longer forced to retire, my role has changed to seeing people safely through retirement and beyond,” says Foulds. “That pension pot has to be invested in different schemes and sources, and work in a different way.”

Flexible retirement planning

Employers are offering an increasingly broad range of benefits throughout the employee’s working life and more flexible retirement planning is becoming increasingly popular.

“It’s never too early to start planning for retirement and younger workers often say, after they have learned a bit more about it, that they wish they’d looked at it sooner,” says Foulds. “There is an increased awareness about retirement and younger workers want to know about financial benefits, such as top-up contributions and salary sacrifice schemes.”

Short, medium and long-term

So what is the best way to plan for retirement, however you want to do it?

Anecdotal reports suggest an employee typically needs around 70% of their pre-retirement annual salary to live comfortably in retirement. But Foulds says she often finds people don’t need as much as they think, especially if they have paid off their mortgage.

“The pandemic has shown us that it is really quite possible to save. When it comes to financial planning, I always say try and keep it simple,” she says. “Workers need to look at short, medium and long-term saving plans. Their goals might change as they grow older. You might, for example, go off wanting that campervan, so don’t lock yourself into a scheme you can’t get out of.”

You also need to look at your other assets and how you can invest them, she says. “Get a forecast of your maximised contributions and bring everything together to work out what your total income and estimated outgoings will be.”

What do you need to live?

When you leave work, you will also reduce all your work-related outgoings, from the cost of commuting to paying for private healthcare, pension contributions, income tax and so on. And remember that you can benefit from the first chunk of tax-free income under the government’s personal allowance scheme, which currently stands at £12,570.

“Once you drill down and look at your expenditure and income, you can look properly at when you can retire and what you need to live,” says Foulds. “It’s a question of thinking about what is important to you and what you need to get you through in the coming years.”

And if we have learned anything over the last few years, it’s that we never really know what is around the corner.

In partnership with Close Brothers

Close Brothers has been providing financial education services to employees of some of the UK's best known organisations for over 50 years.

Contact us today