The ambiguous nature of retirement

In the current age of ambiguity, encouraging saving for an indeterminate retirement can be challenging. But not impossible.

More and more employers now recognise that protecting their employees’ financial wellbeing plays a central role in combating the stress that can lead to bigger problems down the line. Of course, this is no easy ask at the present. There are bound to be uncertainties as we all consider the financial consequences of the COVID-19 pandemic. But the more predictable events in the lives of employees — such as their eventual retirement — can be a source of uncertainty, too. Especially now that retirement has itself become such an ambiguous concept.

Our Embracing the Age of Ambiguity report takes an in-depth look at a working environment in which boundaries — between home and work, work and retirement, employer and employees — seem blurred as never before. 

Research told us that a significant proportion of employees are concerned their path towards retirement may not be smooth. 78% of survey respondents thought that they’d need to work longer than expected before being able to retire. And only 28% felt they knew how much they’d need to save to give them the income they want after work. 

It seems that auto-enrolment has done little to introduce a greater feeling of certainty into retirement planning. Workers understand that they have to contribute to a workplace pension, but many are realistic enough to recognise that this in itself doesn’t make everything plain sailing.

Into the unknown: what exactly will retirement be?

The word ‘retirement’ no longer seems as clear-cut as it once did. Rather than making a clean break from work, retirement may now lead to a new career to replace the old one, or perhaps entail a gradual tailing-off of working hours. Many employees will remain uncertain what the future may bring, right up to the time that retirement becomes imminent. 

Workers may aim to retire at a certain age — maybe the once-traditional 65 — but this age no longer has to correlate with qualification for the state pension. They could aim to co-ordinate their retirement date with someone else — a spouse perhaps — or they could have it forced upon them by health issues. Ambiguity indeed.

Retirement in the age of ambiguity: the great challenge

Given the indistinct nature of retirement in today’s world, employers looking to help their workers to engage with their pensions face what might seem to be an uphill task. After all, we’re asking them to save an indeterminate amount of money, to provide an equally indeterminate amount of income. And when, exactly, might this amount be needed? We don’t know. What will it be needed for, and how long will it have to last? We don’t know that either.

Added to this is another layer of uncertainty caused by the widespread move away from defined benefit pensions towards defined contributions. The eventual outcome of saving into a defined contributions pension depends on a number of factors, including the investment return achieved.

But there may be ways to make the task easier which more of us could adopt. Our research suggests that, although employers’ efforts in setting up pension schemes are appreciated, some employees feel that this effort is not matched by providing the guidance needed to help them really get to grips with their pension and the facts surrounding retirement saving.

How to combat uncertainty and help employees to thrive

Employers, pension providers and advisers can all play a part in encouraging engagement with workplace schemes to help remove some of the uncertainty from our ambiguous work environment.

One way to do this is by making sure employees know about any online tools which may be available to help them gain some idea how their pension might translate into income, once they’ve finished work. Another route would be to offer financial education sessions, aiming to improve knowledge levels on the issues surrounding retirement planning. 

So, in a world where routes to future achievement can seem anything but clear, there are ways for employers to help mitigate some of the uncertainties that their employees face. Plans may need to be revised as time goes by, but the argument for making them — and encouraging them to be made — remains as forceful as ever.

Laura Stewart-Smith, Head of Workplace Savings and Retirement at Aviva, is diploma qualified in financial planning and has spent the last 15 years working in workplace benefits. She is an Aviva spokesperson specialising in employee engagement and financial education and is regularly featured in the media.

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