The importance of financial education and regulated advice.

4th September 2015

Companies need to know how they can help their employees with the new pension freedoms and choices, says Jonathan Watts-Lay, director, WEALTH at work.

Pension freedoms have not been in place long – so many employers are still trying to understand what the changes really mean. Many employers do not offer the flexibilities within their scheme, as implementing flexibility is not cheap, nor is it easy to put the necessary infrastructure in place.

However, there is one overriding issue: should schemes even be considering offering the new flexibilities in the first place?

People must now be thinking about their finances not just in terms of their pensions, but all their savings: ISAs, shares and so on.

If an individual scheme offers flexibility, employees must also consider other savings and indeed other pensions that they may have otherwise there is a danger that they could make poor decisions from a tax and ongoing income generation perspective.

All this complexity around retirement decisions points in one direction – financial education and regulated advice. Although Pension Wise is now available to the over-50s, it is not a holistic approach to savings; indeed it is not holistic in terms of pensions as DB schemes are excluded.

Furthermore, a lot of employees will need to make decisions ten years before retirement about asset allocation to ensure they are on the right glide path – so they have to be aware of their choices at age 45, Pension Wise will not cover that. Furthermore, if people want comprehensive education and regulated advice, then it simply doesn’t do the job.

Financial education should be a priority for employers – there is a risk that without appropriate education employees might not understand the implications of a decision made at retirement or indeed they may end up depleting their pot before retiring, and thus be unable to afford to retire at their preferred date. Regulated advice is a really important facility to be available to employees, to help them make the right choices.

There is a real worry that people will buy products and not really understand what they’re buying. If they take ongoing regulated advice, they should get the right product or service, and they have the safety net of greater consumer protection.

We provide the full package for employees: the financial education, to help them understand the pros and cons of each option, and regulated advice for those who think it’s too complicated and need further help.

We can also implement retirement plans whether an employee decides they want to buy an annuity, go into drawdown or simply make cash withdrawals in a tax efficient way.

Employers and Trustees can no longer say they are unable to offer the new pension flexibilities as by going to the right supplier all is available as a one stop shop.

For further information, please click here to contact us.

Further coverage can be found in Reward Guide.