The introduction of Freedom and Choice in pensions has redefined how individuals take income in retirement. But are employees and members equipped with the knowledge to create a sufficient retirement income, and what support is available to help with this?
With this is mind, WEALTH at work conducted a survey to investigate what workplace support is available to help employees understand how to make the most of their finances throughout their career in order to optimise income at retirement. Jonathan Watts-Lay explains the key findings.
Time to wake up to the importance of saving for retirement
Our results show that despite the vast majority (80%) of employers believing that employees are not saving enough for retirement, over half (51%) are still failing to provide any form of financial education in the workplace during pension accumulation.
Whilst auto-enrolment has come some way in helping employees save for retirement, it’s generally accepted that current contribution levels are not enough to create a sufficient retirement income.
Financial education is key in raising the importance of putting something aside for later life in order for employees to have adequate savings to maintain a reasonable standard of living in their retirement.
Gliding in the wrong direction
It’s encouraging that the majority of employers (69%) now offer employees a choice in glide path in the years leading up to retirement. However, a third (33%) of employers will still default employees to an annuity tracked glide path if no active investment choice is made.
When we consider that there has been a significant fall in annuity purchase since the pension freedoms took effect, defaulting employees on an annuity glide path appears to be an ill-considered strategy.
Lack of support at retirement leaving employees at immense risk
With less than a quarter (22%) of employers believing that employees are aware of their income options at retirement, and the majority (61%) believing that employees are unaware of the risks surrounding accessing their retirement income, it’s hard to see how employees can secure a good outcome.
The survey also found that 71% of employers do not provide a full retirement income service for employees at retirement. Without the right support many could be at immense risk of making costly mistakes such as paying too much tax, buying inappropriate products or even falling for a scam.
61% Employees are unaware of the risks surrounding accessing their retirement income
However, it doesn’t have to be this way as employers are perfectly placed to tackle this problem. Much can be learnt from forward thinking employers and trustees who are now bringing in specialist retirement providers to deliver the support employees require to achieve financial security in retirement. This includes the provision of financial education, and guidance and advice to ensure employees are fully informed when facing life changing decisions about their pensions and lifetime savings.
I cannot stress enough the importance of employers and trustees doing everything in their power to ensure that the right level of support is provided.
All statistics quoted are from WEALTH at work’s 2018 survey entitled ‘Focus on Retirement Income Matters.’
About the survey
The Focus on Retirement Income Matters survey was carried out by WEALTH at work, a leading provider of financial education, guidance and advice in the workplace. The survey targeted key HR, Rewards & Benefits, and Pension professionals. In total, the research received 85 responses which were completed online and via paper over 6 months from June to December 2017. All figures have been rounded to the nearest whole number.