5 ways to take the bite out of pension regret

Two people in the kitchen chopping vegetables

With pension regret a reality faced by some over 50s, early financial education and meeting employees’ needs may help turn the tables.

As the waiter brings the entrees to the table and your eyes linger a bit too longingly at your friend’s order, you may feel a pinch of regret as you sprinkle salt on your dinner. Next time, you tell yourself, you’ll have what your friend’s having. And there’s plenty of time to try again.

Although food envy may be fleeting, and the feeling of regret largely inconsequential here, there are times in life we’d hope to avoid the emotion altogether.

Especially if it comes to your financial future or that of your employees.

Exploring perspectives of over 50s on their pensions, our research found that half of the respondents (49%) regret not saving into their pension sooner, and almost two thirds (64%) wish they had contributed more into their retirement savings at an earlier stage [1]Footnote 1.

Although pension regret or retirement savings isn’t always a shared topic of discussion, unlike an envious pasta platter, it is too often a shared experience.

A quarter of the participants stated they only started paying into their pension after they turned 30 years old because they didn’t feel financially stable enough to contribute any sooner (51%). Many prioritised raising children (42%) and paying off their mortgages (40%) before putting any surplus cash into their pension [1]Footnote 1.

Head of Savings and Retirement at Aviva, Alistair McQueen says, “Hindsight is a wonderful thing and life in your 20s and 30s can often take over, with children to raise, debts to pay and holidays to be had. However, it’s important to take stock of your financial situation early. You may not think you have enough spare cash, or that you have years until you retire, but as we found with our survey, most people over the age of fifty (64%) wished that they had paid more into their pension pot, sooner.”

However, it’s important to take stock of your financial situation early... most people over the age of fifty (64%) wished that they had paid more into their pension pot, sooner.

As employees look increasingly across the table to employers for guidance on their financial future, and businesses recognise the responsibility, educating employees with their pension savings now may reduce risks of pension regret in their future.

1. Invite them to the table early

Review your induction processes for new members to make sure workplace pensions are covered, in depth, at the earliest stage. In addition to talking about workplace pensions, providing members with an information pack on retirement savings may encourage early engagement. The pack should:

  • be written with straightforward language.
  • have clear guidance with manageable steps for an action plan. 
  • highlight where new members can go for support and further details. 

2. Embrace the technology

Pension providers’ websites often include online tools to show the potential effect of increasing or decreasing payments. Directing employee to these tools can help them build their pension confidence. It may also help them realise that adding a comparatively small amount to their contributions could make the difference between a ‘good’ lifestyle in retirement and ‘getting by’.

Almost four in ten (39%) people over the age of 50 believe that an income between £10,000 to £20,000 a year in retirement will be enough to live ‘comfortably’ [1]Footnote 1. In October 2021, however, The Pension and Lifetime Savings Association (PLSA) found that £20,800 a year will only provide an individual with a ‘moderate’ standard of living in retirement. A ‘comfortable’ standard of living, the PLSA suggests, would mean an income of £33,600 a year.

Dale Critchley, Policy Manager for Workplace Savings and Retirement at Aviva, notes that “some people forget about inflation, so when thinking about the level of income they need, they think about the total they might need today. So, they set a target to achieve enough savings to provide that level of income in 20 to 30 years’ time. A £33,600 target will be £49,927 in 20 years’ time, assuming 2% inflation, so total wealth at retirement needs to fund £50K not £33,600 to be comfortable.”

Signposting tools that explore how changes in contributions may affect employees’ pensions may allow for more informed decision making.

3. Create a space for financial education 

Hosting financial education seminars may encourage employees to think about their future. Beyond helping employees to understand pension basics, you may consider recruiting pension providers and other professionals to guide employees through their finances in general.

Creating the space, time, and resources for employees to review their finances holistically may help grow their confidence and develop good financial habits. And although programs like auto-enrolments are a baseline for pension activity, and certainly a good start, they don’t necessarily mean automatic financial security.

Encouraging members to think about their ideal retirement lifestyle, to inform their current pension contributions, places them in greater control of their retirement future.

4. Make communications relevant and relatable 

Sending the right communication at the right time may be the invitation employees need to join the conversation.

Our research found that those aged 35 to 44 are least likely (25%) to be taking action to improve their retirement finances. This compares with 14% of consumers aged 18 to 24, the lowest percentage of any age category [2]Footnote 2.

More recently, we found that while 70% of respondents did not seek any professional financial advice to help with pension savings, if given a chance to go back in time, nearly half of the respondents (49%) would seek professional pension advice between the ages of 18 and 30 [1]Footnote 1.

Age matters in pension conversations.

Make sure pension communications acknowledge the different needs and priorities of employees of all ages.

  • With younger workers, concentrate your communications on saving in general – the word ‘retirement’ is likely to be a turn-off. The pension scheme should be positioned as a part of the whole package you offer. And remember to emphasise that, in addition to their own contributions, you as their employer also pay into their pot.
  • When having a conversation with those aged 30 to 50, acknowledge that they’re likely dealing with more immediate concerns, such as the expense of raising a family. Pension support should be part of your service to help them make the most of their money.
  • Employees who are closer to retirement will be more aware of the need to plan for it. Encouraging them to consider the decisions they need to make from age 55 is more appropriate to their life stage.

5. Make communications matter (of fact)

Keeping employees switched on to the benefits of their workplace pension scheme means regularly reminding them of the facts. Using a range of communication methods, to keep the information fresh and engaging, alongside clear and concise writing will mean the message doesn’t get lost in the grind of daily emails or media posts. Emphasising and simplifying points, such as:

  • you put money into their pots – it’s not all down to them. If they opt out, they won’t benefit from this.
  • it’s their money – when it goes in, and when it comes out. Currently, from age 55, members can take a quarter of it in cash, tax-free.
  • tax relief amounts to a 25% top-up for most savers (66% for higher rate tax payers). You can explain that for every £80 of take home pay contributed to a pension, a basic taxpayer has £100 invested. That’s 25% extra – instantly. For higher tax payers the final cost is £60, a £40 bonus comes from tax relief.

And it’s not only a matter of what you tell your employees (or how often). It’s also about when you tell them. Thinking strategically about when certain information is sent may be the key to your success. The holiday season, for example, may not be the best time to launch an engagement campaign as it may become lost in the holiday shuffle.

With daily demands on our wallets and purses, and retirement a (potentially) distant point on the horizon, it’s understandable that employees may prioritise more immediate financial concerns.

By sitting at the table with your employees, who are sharing their life stages and may look to you for guidance, you may be in the most helpful place for their retirement journey.

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