A conscious impact.

13th January 2016

By Jonathan Watts-Lay, Director, WEALTH at work.

Employees need to understand when they need education and advice around their pension decisions.

As the pensions market stands, employees still don’t really understand their options around freedom and choice – which could mean that they make the wrong choices or end up with a huge tax bill. Many want to take their cash, but don’t want to take advice on the best way of doing so.

However, around 60% of people attending WEALTH at work’s pre-retirement seminars decide that they do in fact need advice – if they are educated about their pension and retirement options, they get a very different perspective on what they need help on.

There are what we call two kinds of ‘incompetence’:

• Unconscious incompetence: not knowing that you do not understand your choices, and making decisions regardless.
• Conscious incompetence: after an educational intervention, understanding where the gaps in your knowledge lie and where you need help and advice.

When you go through a seminar the aim is that you become ‘conscious’ and start to recognise all the complex things you need to understand around your pensions, savings, longevity, health and so on.

While historically finding and funding regulated advice was mainly down to the individual, more companies are now considering paying for, or contributing to, that advice.

In doing so, the employer is also managing their own risks. By paying for advice employers know they have done what they can to help their staff make the right choices!

A key facet of financial education is helping employees to understand how much they’re saving and whether or not they’re saving appropriately – and the consequences of taking inappropriate amounts pre-retirement. It is fair to say we should all be concerned about employees withdrawing money from their pension before having actually retired!

Education and advice is also key to support employees with their retirement plans. This is particularly important as many will not be able to manage their retirement income through the company scheme as it will not take account of all historical pensions and other savings and investments which will need to be calibrated for a tax efficient income in retirement.

The onus is now on the employer to initiate financial education with supporting regulated advice, embed it in the company culture, and engage their employees with it. And if they do, it is win-win – there’s a shared goal in making sure employees are on the right path to retirement.

Further coverage was gained in Reward and Reba.