Making the right decisions at retirement

17th March 2014

Jonathan Watts-Lay, Director, WEALTH at work, was recently interviewed by The Pensions Management Institute about the importance of employees making the right decision at retirement.

Please click here to watch the interview.

Presenter:  I am joined now by Jonathan Watts-Lay.  He is Sales and Marketing Director at WEALTH at work.  It’s a firm that specialises in financial education and advice within the workplace.  Jonathan, what do you mean by financial education?

Jonathan Watts-Lay: I think the key difference is that financial education should be a learning experience, so at the end of an intervention whether that’s through a seminar, it could be online tools, it could be webcasts or live webinars, is that an individual or an employee understands something at the end of that process that they didn’t understand at the beginning.  And that’s quite different from what I would call passive information.  So if you just give somebody a brochure on pensions or you say, well, I’ve got information on the intranet site, go and have a look at that, you’re really expecting people (a) to go and actually read that stuff, but secondly you’re expecting them to understand it, and thirdly to do something as a result of reading it, and that is a lot to ask of just information.  So we find that education by the fact that it’s far more proactive and tailored to individual needs that people actually go through a learning experience and therefore can make informed choices.

Presenter:  You commissioned your own research into retirement income options earlier this year.  What were the main findings?

Jonathan Watts-Lay: Yes, this was a study that was done with employers and we asked them a range of questions around pension saving and what employees do in their organisations at retirement in their view.  I guess some of the real worrying pieces that came out of it were that only 13% of employers believed that their employees were saving enough for retirement.  So whilst they might be making contributions they were not high enough.  Also that only 14% believed that their employees understood the full options available to them at the point of retirement, so understanding that there’s a choice, there’s annuities, there’s drawdown, there’s perhaps phased retirement, but interestingly about 83% of them actually recognised that professional retirement education and planning was crucial if they were going to overcome the issues that they believe their employees are facing.

Presenter:  You’ve highlighted the need for employees to really understand their retirement income options and to think about taking advice.  Does this tie in with the whole debate that’s going on about annuity market at the moment?

Jonathan Watts-Lay: It is in part although we’ve been doing this for a number of years so really we’ve been aware that employees generally do not understand what their options are at retirement, and of course this is a growing problem as we have more and more employees coming out of defined contribution schemes.  It’s very clear to us, and we measure every intervention that we have with an employee, it’s very clear to us that employees actually have a real lack of understanding as to what those options are.  And it’s not only important to understand what the options are, it’s important to understand what the pros and cons of all those options are, but it’s also important to understand actually what’s right for you as an individual, and so I think that a lot of the debate that’s going on at the moment is good, healthy debate and it surely is needed because we know for a fact from doing tens of thousands of these interventions that people do not understand what those options are.

Presenter: And how significant is it that The Pensions Regulator is picking up on this at the moment?

Jonathan Watts-Lay: I think it’s really significant.  I think it’s important both from an employer perspective and a trustee perspective that they’re doing the utmost that they can for the employees.  The best way that I can think about this is the fact that you may save for let’s say 40 years into a pension and the trustees will do a diligent job in making sure that the fund selection is right and the cost structures are right, the employer is doing a great job often in terms of the contributions that they’re making, but actually when it comes to that critical point of turning that pension saving into retirement income employees get abandoned, and so it’s quite right that The Pensions Regulator is picking up on that now and saying actually there does need to be more of a process that you pass employees through to ensure that they can make those informed choices at retirement.

Presenter:  If you could leave one message with pension trustees and pension managers, what would it be?

Jonathan Watts-Lay: It would be that for most people the decision that an individual makes at retirement is probably the biggest financial decision that they will make in their lifetime and it will impact literally the rest of their life to the point they die.  So this is such an important decision, after 40 years of saving it’s important that that decision, or the series of decisions in some cases, that they may make as they go into retirement are absolutely right.

Presenter:  Jonathan Watts-Lay, thank you very much.

Jonathan Watts-Lay:  Thank you.

Views expressed in this webcast are the personal opinions of the speaker(s) and should not be regarded as the official views of the Pensions Management Institute.

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