Research suggests ‘shockingly low’ understanding of pensions among employees

9th April 2014

New research suggests ‘shocking low’ levels of understanding among employees when it comes to their pensions.

• Only 13% of employers believe their staff are saving enough for retirement
• 65% say employees do not understand what pension income they can expect
• Findings are even more stark after Budget pension reforms give consumers greater  choice

WEALTH at work, leading providers of workplace financial education and advice, revealed that only 13% of employers believe their staff are saving enough for their retirement.

WEALTH at work’s ‘Generating income in retirement’ report surveyed 104 companies to see if they thought their employees were prepared for retirement. It found that nearly two-thirds (65%) feel their staff do not understand what income they can expect from their pension scheme at retirement.

The research also revealed that only 14% of companies believe their employees are aware of the various retirement income options available to them. So even if they are saving enough, without the right guidance they could waste years of careful saving by making the wrong decisions at retirement.

The findings highlight the urgent need for greater financial education just two weeks after major pension reforms announced in the Budget gave consumers significantly more say over their finances in retirement.

Jonathan Watts-Lay, Director, WEALTH at work, said, “These figures are shockingly low, and show it is critical that those approaching retirement get the right financial education. Having a comfortable retirement is not just about the level of pension contributions or the funds selected, but what is actually done with the pension pot when retiring as this can significantly impact the level of income which is generated.

He added, “It was welcome news in the Budget that from April 2015 those retiring from Defined Contribution schemes will be able to decide how they want to draw an income from their pension pot. However, increased choice and flexibility means that individuals need to understand the options available to them, the advantages and disadvantages of those options, and ultimately what is the right thing for them to do on a personal basis.”

Watts-Lay continued, “It is important to consider all savings and assets, and not just pension when making decisions at retirement. Consideration also needs to be given to wealth held by partners, whether you want to carry on working part time, have health issues, or want to change your lifestyle, as these can all influence decisions. I can see a lot of people misunderstanding things like income tax on their pension savings and wondering how they managed to end up as higher-rate tax payers when they had previously been in the basic rate band for their whole working life. It is vitally important that after what may have been a lifetime of saving, employees know their options, and are able to access advice to ensure they are making the correct decisions. For many, decisions at retirement are among the biggest of their lives.”