Are employees abandoned at-retirement?

4th September 2017

Jonathan Watts-Lay, Director, WEALTH at work, a leading proving of financial education, guidance and advice in the workplace, discusses with Jenny Hammond from PMI TV the pension changes and their impact, how employers and trustees can help when it comes to retirement income options, how to engage employees and what upcoming challenges he expects employers, trustees and employees to face.

Please click play to watch the interview.

Alternatively, please see below for the transcript of the interview.

Presenter: I’m joined by Jonathan Watts-Lay, Director at WEALTH at work, to discuss whether employees are largely abandoned when it comes to retirement. Well let’s start with the pension changes we saw two years ago. How much has actually changed when it comes to employees, trustees and employers, what sort of challenges do they face?

Jonathan Watts-Lay (JWL): I think we’ve seen them go through various phases since the new regulations were announced. There was a first phase, where trustees and employers to an extent were not really worrying too much about it, and therefore not really doing anything about it. We then went into a second phase as the regulations actually came into situ where trustees were thinking about, ‘Can we do things within our scheme?’ But having done a lot of analysis on that, I think they decided that it wasn’t going to be appropriate for a number of reasons. Partly around the risk of doing it themselves. There were also issues around creating the infrastructure to allow all the various new options to be executed upon, and in turn that had a cost attached to it.

And then there was probably an overriding issue from the employee or member perspective, which is that freedom and choice is all about looking at all of your assets, so all your pensions. So of course, if your current pension provider for the current company you work for changes something, but it doesn’t take into account all your other assets, then actually you haven’t really moved forward too far. So I think it’s only now we’re getting into another phase, which is where we’re seeing a number of companies and trustees actually putting tenders out to the market, where they’re really looking for a retirement service.

Presenter: And employers and trustees, have they adapted to these changes?

JWL: I think they are and in some ways they’re realising now that if they don’t do anything, there’s a real issue that at best, people retiring from their organisations may not optimise their retirement income. So in essence they may make relatively poor decisions meaning that they have less money every month as income than perhaps they could have done. Or at worse, (and we are seeing a lot of this) is the whole issues around scamming. Some of these scams are fraudulent, but some of those scams are not fraudulent- they’re perfectly legal but actually carry a lot of risk.  There are examples where those retirees are losing a lot, and in the worst case, all of their retirement income.

There’s a bit of a wakeup call that’s occurred in the last two years since freedom of choice has been in, which is really saying, ‘trustees and employers really have to do something here if they’re really going to help protect those members and the 40 years of savings they have.’

Presenter: What can employers and trustees do to support employees when it comes to them understanding their options at retirement?

JWL: That’s a really key issue. One of the issues faced by the employer and the trustee is working through ‘how does a member think about this?’ and ‘what are the sorts of things that we could put in place to help them?’. In the early days there was what I would call a ‘product mentality’ For example individuals would ask, ‘Is there a product we can get that’s going to deliver a complete solution?’ And of course in reality that’s probably not the case, because some people will have a number of different pensions. They will have DB pensions, they will have DC pensions. They will probably have other savings as well, such as ISAs or other general savings and investment accounts – So all of this now needs to be taken into account. There’s a process which we’re trying to get employers and trustees to think about, which includes the questions that members and individuals are likely to ask.

So the first of those questions is simply, ‘What are my options, what are the things that I need to understand and what are the advantages and disadvantages of those options?’ The second question then tends to be, ‘How do I work out what’s absolutely right for me?’ The third question then tends to be, ‘, How can I implement it? Can I do it in the workplace, do I need to go down the high street, could I go on the internet, how do I do that?’ And then the fourth issue, which I think is one that hasn’t really been thought about too much until more recently, is ongoing support for those people. Because of course now under the new regulation, the decision you make on the day that you retire is not necessarily going to be the right decision to last you 25 years or whatever it might be in retirement. So there’s four key questions really that the employer and the trustee really need to consider.

Presenter: So how do you engage employees around pensions and lifetime savings?

JWL: So I think it is to really answer those four questions. So, that first question about ‘how do I know as an individual what my options are’, it’s about putting in place financial education and guidance. I think a lot of firms at the leading edge of this are putting in education programmes for those that are still employed by the organisation. But then of course, the trustees have to think about those that are still in the scheme. But also there are deferred members who might have left the organisation a number of years ago, and so they’re more likely to put guidance in place for those individuals which can be done over the telephone.

I think the second question, in terms of how people actually work out what’s right for them – we’re seeing that financial advice is becoming more important. And it’s quite interesting actually, the interaction between the first question and the second question, because those people that go through a financial education and guidance process (generally speaking), about 70% of them say, ‘I think I need regulated advice.’ So it’s quite an interesting dynamic because it’s almost an issue around, ‘If I don’t know what I don’t know, then I won’t take advice. But when I actually have some information through financial education and guidance, then actually I realise I need advice.’

Presenter: And finally what would you say are the biggest challenges that employers, trustees and employees face over the next 12 months?

JWL: I think it’s really about making sure they don’t get behind the curve now. We’ve seen (particularly in the last year) a lot of the larger companies and trustee schemes actually going out to tender to buy in these sorts of services. And what they’re realising is of course, they have the power to get highly negotiated rates. Now, they may not want to pay those rates themselves. They might want the employee or the member to pay because there could be ongoing costs throughout retirement. But of course, what they’ve been able to do is the due diligence. Making sure the service provider they’re getting in ticks all the right boxes. And making sure that they get preferential rates effectively on behalf of their members.

So you end up thinking, ‘There’s a real win-win here, where the employer/trustee can use that buying power. But they don’t ultimately have to pay for it themselves, and then the member or the employee can take advantage of that and effectively get a certain amount of protection as they go through retirement. So I think more of that is happening. There’s live tenders out right now on this sort of stuff. So I think the real danger is that if firms don’t step up, there’s going to be almost like a two-tier structure where some are offering fantastic retirement services to their employees and members, and others haven’t really got off the starting block.