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03 Aug 2022
by Stephen Lowe

Why planning for retirement can’t start too soon and how employers can help

The impact of the Covid-19 pandemic and cost of living crisis on saving and investing could create problems for many years and potentially right into retirement

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The Covid-19 pandemic has supercharged adoption of new technology by both employers and employees. Employee benefits need to keep up by offering access to digital tools to help promote financial education and literacy, strengthen financial wellness and build financial resilience.

The pandemic, followed by a cost of living crisis, with soaring energy and grocery prices, risks turning people’s financial pain into a chronic long-term condition. The impact of cutting back on saving and investing or using up those resources to meet other expenses could create problems for many years and potentially right into retirement.

In recent days the All Party Parliamentary Group focusing on financial resilience released its first recommendations. These include that “the government should work with employers to improve the ways they communicate financial information to their employees” such as financial health checks at key times of life.

Driving pension engagement

Almost a decade ago, one of the arguably most successful government policies of recent years was implemented. Auto enrolment into pensions has almost doubled the proportion of employees saving into pensions from less than half (44%) to nearly nine in 10 (86%) of eligible private sector employees.

But while using ‘passive’ methods to drive positive behaviours is clever, there’s a point where it starts to undermine some of the good work, for example, by discouraging people to think about whether they are saving enough or how and when to best access their pension benefits.

Driving up active engagement now runs through government pension policy like words through a stick of seaside rock. Most obvious are plans for a pension dashboard to give people sight of all their pensions in one place, the financial ‘mid-life MOT’, and the pension ‘statement season’. More widely, it is also discussing savings ‘sidecars’ to allow people to build up funds to see them through tough times without having to raid longer term savings or go into debt.

Convenience, trust and price

Employer activity is crucial to helping drive higher levels of financial engagement. It mainly comes down to a combination of convenience, trust and price.

Left to themselves, people may struggle to choose between financial providers and products in terms of conditions and pricing, especially for new fintech solutions with short track records.

Employees are much more likely to engage with solutions their employer has put into place where they know thorough due diligence has been carried out, there is no hard sell, and which may cost less than going directly.

Without the nudge of an employer who has done the heavy lifting this sort of planning stays on many people’s ‘to do’ list until it’s too late.

What’s in it for me?

For employers, there are benefits in helping colleagues in this way – in terms of both the wider recruitment and retention policy. The positive effect extends all the way to the run-up and shift into retirement too, by helping employees feel more confident they are moving towards life after work in a controlled, informed way as opposed to having no plan and perhaps end up making rushed decisions.

Fintech services are adaptable and flexible, meaning they are well placed to help guide colleagues through the complex choices to be made in the run-up to retirement and beyond. Engaging with their pension through a trusted source makes them less likely to fall prey to scams.

The end game starts early

Education needs to start a decade or more before retirement, which is why we have built our Pension Buddy service.  It enables colleagues to dip their toes into retirement planning from their mid-40s without having to commit to a deep dive into the detail.

The level of support people need starts to grow from this point, with a focus on closing their careers and moving to life beyond work. The financial decisions people face require much more than just numbers or valuations that pension schemes provide.

People need to think about what sort or retirement they might like, how close are they financially to meeting their retirement goals, how do they make their pension savings work hardest with their other financial assets and in the most tax-efficient way.

No excuse not to help

It takes planning to retire well. Many people end up with regrets by falling into retirement unprepared. The pandemic and cost of living crisis have made that more difficult – less than 40% of households are on track to achieve an adequate retirement income.

With technology making it both flexible and affordable to help colleagues actively engage with their finances, is there any excuse not to help?

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