How financial education can glide employees into retirement.

28th September 2015

It’s been nearly six months since the pension changes came into force bringing pension freedom to many. There is now much to consider such as, are employers adapting their ‘glide path’ options for employees? This is essential given that there are important decisions to be made which will have lifelong consequences.

Before the pension changes when annuity purchase was the main option available, life cycling was something that may have required little thought or consideration. Now that many options are open to pension scheme members, employers must offer suitable glide path options to meet their employee needs in the lead up to retirement.

Additionally, our experience shows that employees find selecting funds for their pension confusing, and most choose to invest in the default fund provided by their workplace pension which was traditionally aligned an annuity purchase. But now that purchasing an annuity will not be the choice made by many, employers will need their employees to look at their glide path up to ten years before their anticipated retirement date, to align it with their chosen retirement income option.

However, research by WEALTH at work shows that 58% of employers believe that their employers are unaware of the various retirement income options available to them – so how can we expect employees to make a choice about something that they aren’t equipped to understand?

This is where financial education can help, as it can explain the advantages and disadvantages of different retirement income options such as annuities, drawdown, or a combination of options. Employees should then have more confidence about what to do next to help them to make a choice about their favoured retirement income option and therefore, select an appropriate glide path to suit this.

But it doesn’t end there as it’s not just about pensions! Employees now have to think beyond pensions and consider all savings such as ISAs, share schemes and deposit accounts because tax efficiency  will only be achieved by considering all assets and how best to calibrate the  withdrawal of income.