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Financial education and advice is essential to maximise retirement savings and income
9th March 2012
The report provides evidence of the problems facing DC members in the workplace. It addresses the concerns that DC members are being let down at both the accumulation and decumulation phase which ‘represents an illogical and uncoordinated journey’.
The research indicates that 80-90% of members passively accept the default option and ‘do not make active decisions during the accumulation stage’.
The report also suggests that at the decumulation stage, individuals can ‘lack the capability required to secure the right annuity at the right price’. It states that many of their interviewees said that selecting an annuity at retirement ‘demands an above-average level of literacy & numeracy’.
It highlights that ‘the only regulatory requirement is that employers must provide basic generic information about annuities and the OMO (Open Market Option)’. Some employers fulfil this by offering a leaflet to employees but this doesn’t ensure understanding and without a full explanation, complex information can often lead to confusion. This is why the provision of financial education in the workplace is essential.
Jonathan Watts-Lay, Director at WEALTH at work comments, “Many people now live for 30 years or more in retirement, so the decision made at the point of retirement is probably one of the biggest financial decisions they might make in their lifetime. An employee can spend their whole working life building up their pension pot, so making the right decision at retirement is paramount and should be given careful consideration. If they get it wrong, they could spend 30 years or more paying the price. By providing financial education it allows an employee to then make informed choices.
He continues to explain, “There is also a growing need for suitable advice for all retirement options, not just annuity. Without suitable advice, many employees cannot guarantee they will get the right retirement income, let alone at the right price. The report provides many headline recommendations but the provision of financial education and suitable advice for many employees will be essential in order to maximise retirement savings and income.”
For further coverage, please see Personnel Today online.
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