From first to final payslip: helping employees to retirement
Helping employees with their retirement plans isn’t only about explaining their savings options but building knowledge and confidence at all stages.
Whether stepping on the career ladder for the first time, starting a new role, or being a step away from collecting that last paycheque, employees are looking for support.
With only a little over one third (35%) of people feeling knowledgeable about financial products like investments, pensions and annuities, and only 23% having a ‘very good idea’ of the income they need in retirement, some employees may have a retirement knowledge gap that’s impacting their confidence.
Questions like ‘how much should I be putting into my pension?’ and ‘will my pension last?’ may get louder as the years go on.
52% of UK adults don’t have a plan for their finances in retirement and five million people approaching retirement age don’t have an “adequate” retirement income, according to the Chartered Institute of Personnel and Development (CIPD). With one in six having no pension savings, that small voice in the back of the mind may become rather distracting for some.
Employers may care for good reasons
Caring about employees’ financial wellbeing isn’t only about doing the right thing, it’s also about helping business grow.
“Poor financial wellbeing,” according to the CIPD “impacts health in terms of poor psychological wellbeing, higher stress and anxiety levels, and lower levels of good health. "And there are “hefty” costs to businesses in areas such as productivity, retention, attendance, and engagement.
Although half (51%) of businesses offer a pension scheme with a minimum employer contribution of 6%, only 28% offer a pension contribution matching plan. And although every business must make the right choices for themselves and their employees, there may be additional cost-effective ways to support employees in their retirement journey.
For instance, 38% of employers give employees access to free financial education, guidance or advice but only 17% have pre-retirement courses specifically available.
Businesses could add value to their employees’ retirement journey, whether at the saving (accumulation) or spending (decumulation) stage, by building their confidence through knowledge, guidance and advice.
A staged approach to retirement support
For employees at the start of their career, employers should focus on encouraging good savings habits and introduce the importance of retirement savings. From basic education on how pensions work to their tax benefits, having an early education on the topic may build a strong foundation for future decisions. At this stage, giving information that is clear and easy to understand (think jargon busters) could help build employees’ confidence in their own financial literacy.
There are also tools that employees could use at any stage of their career and pension journey. Encouraging employees to use tools like our Mid-Life MOT app, My retirement planner, and the Life expectancy calculator may not only help employees visualise how they want to live in retirement, but also set the appropriate financial goals to achieve this lifestyle. Also, signposting resources like the Pensions and Lifetime Savings Association’s (PLSA’s) Retirement Living Standards can help further clarify what kind of lifestyle an employee could have in retirement.
Some employees may be preparing for the transition from work to retirement by making final decisions about their income options. At this point, employers can help employees in the following ways:
- Create a psychologically safe space – like many life stages before it, retirement may be filled with complex emotions. Whether excited, fearful, or overwhelmed (and everything in between), employees want a space free of judgement or shame to explore their options. Some employees may be ready to collect their final paycheque while others may want to consider working reduced hours or carry on working past the minimum pension age. Having open and honest discussions with your employees will help inform their decisions.
- Advice versus guidance – making sure employees know the difference between pension guidance and advice may help them take advantage of the most appropriate tools or resources available for their retirement circumstances.
While guidance is an impartial service that helps identify options and narrow down choices, it won’t tell an employee what to do or which product to buy (the decision is theirs); guidance is also free unless the provider clearly says otherwise. Your workplace pension provider may give guidance through webinars, workshops, or online resources. PensionWise, from Money Helper, is a free government-backed service offering people over 50 guidance on their retirement options.
Advice, however, is given by a qualified and regulated professional (or regulated organisation) that recommends a specific product or course of action specific to an employee’s circumstances and financial goals. This is personal and based on information provided by the individual employee. Check out the Money and Pensions Service information for further details.
- Retirement income options – at this stage, retirement years become more crystallised and an employee may have a better idea of how they’d like to access their retirement savings. With 64% of people prioritising their income lasting as long as they do and 61% focusing on having enough income to be comfortable, helping employees understand their retirement income possibilities (either with guidance or through access to an adviser) is important.
Employees may choose to take:
- a guaranteed income for life (annuity);
- their pension pot as a number of lump sums;
- their whole pension pot in one go; or,
- a more flexible retirement income.
In the early stages of their retirement, employees may be more active and want to make home improvements or take more holidays. In the later stages, they may be less active and have fewer expenses, but want the certainty offered by a guaranteed income – one that lasts as long as they do.
A blended option, then, may be a more appropriate fit for some employees. This may look like bringing together the flexibility of income drawdown (in the earlier years) with a guarantee in later life. This could help protect against employees outliving their pension pot and could shape employees’ decisions around investments, inflation protection, the amount of sustainable income to use in the early years, and when to buy a guaranteed income.
From the start to the end of an employees’ working life, the point is to recognise and acknowledge the voice that’s looking to the future and asking questions.
To learn more about how retirement is changing, check out what’s happening with our guided retirement option.