Are employer’s actions inadvertently providing lower retirement income for staff?

12th December 2014

Yesterday the FCA announced its findings from the Thematic Review on annuities sales practices. It highlights the enormous issue of employees not shopping around when purchasing annuities and potentially missing out on higher income through the open market or perhaps qualifying for a better paying enhanced annuity.

It stated that where employers were involved in the process, employees typically had more limited knowledge of their options and did not shop around. This is usually because they trust the person they speak to who they treat as an ‘expert’ and feel little need to carry out any follow-up research.

So, are employer’s actions inadvertently providing lower retirement income for staff? And how best can employers best address this issue?

Jonathan Watts-Lay, Director, WEALTH at work – leading providers of financial education, guidance and advice in the workplace comments, “I believe employees will have 3 main questions which need answering to help employees achieve the best retirement income;

Firstly, employees will ask, ‘What do I need to know?’ Financial education is key to this as it will help employees understand the advantages and disadvantages of all the options available including annuities, drawdown or a combination of both. And it’s not just about pensions – all savings will need to be taken into account such as ISAs.

So for example, where an annuity is appropriate, they will need to understand they must shop around to get the best deal and in fact an enhanced annuity might be more appropriate and gain them a better income.

Secondly, employees will ask, ‘But what is right for me?’ Individual guidance and support is of paramount importance here and should include the availability of both helpdesk support and fully regulated advice.

And finally, employees will ask, ‘How do I do it?’ Employees will need to manage their retirement income in line with their requirements and may want to make a series of decisions over time rather than a single choice at retirement.”

Finally, he adds, “It seems to me that employers should be providing financial education in the workplace, supported by individual guidance and regulated advice when required to maximise employee retirement income.”

If you would like a copy of the FCA findings please click here.

Please see further coverage in:

Personnel Today.