Employees save for many years into pension plans and other forms of investments to fund their retirement income but they are often left without any guidance when they need to make what may be the biggest financial decision of their lives.
With new legislative changes such as the removal of the default retirement age and a greater degree of flexibility in how pension benefits are taken, employees need to rethink their retirement plans.
These changes require new learning and therefore can create uncertainty for many employees. This is encouraging more employers to provide financial education in the workplace to help employees understand the key facts so that they may make informed choices about their financial future.
It is also important that at the point of retirement individuals understand which income options are best for their specific situation.
New regulation dictates that an individual will no longer need to convert a pension into retirement income by a certain date. Therefore, an individual must choose the most appropriate income option such as an annuity or pension drawdown. They need to understand the advantages and disadvantages of all retirement income options to be able to make an informed decision as a poor decision could adversely affect their retirement income for 25 years or more.
The key issue with this, is that employees need to rethink their retirement plans now – whether saving towards retirement or taking an income to live in retirement. It is essential that employees receive financial education and suitable guidance in the workplace to understand their choices, what can be achieved and consequently make informed decisions.