Many employees face financial worries at one time or another during their lives, and concerns over retirement can be a big part of this. In fact, our research found that 32% of working adults worry about being unable to afford to retire when they want, and 41% know they are not saving enough for a comfortable retirement.
Employees are often ill-prepared for the complex challenges that lie ahead as they approach retirement and many struggle to understand essential information such as tax, inflation risk or how investments and retirement income products even work. Our research found that these issues are a great concern for Trustees with 89% worrying that their pension scheme members don’t understand the tax implications of accessing their pension and 70% are concerned about a lack of engagement with members at retirement.
It is imperative that employees understand their pensions throughout their working life, as well as understanding the choices that are to be made at the point of which they wish to retire.
So, what can be done?
It’s clear that early pensions engagement is crucial for prosperity in retirement. Many workplaces now provide interventions through financial wellbeing programmes that include financial education and guidance which can be segmented by career stage:
Early-career – getting in the savings habit: Auto enrolment has helped enormously to ensure people are contributing to pensions. However, support is needed to understand what level of income this may generate in retirement and whether contribution levels should be increased – perhaps with additional contributions from the employer. This can be difficult when the monthly budget is tight so broader money management issues may need to be considered too.
Mid-career – staying on course: A mid-career ‘financial MOT’ can help people to see if their pensions and other retirement savings are on target, and what to do if they’re not. Topics can include reviewing financial goals as well as starting to understand how income may be generated in retirement and ensuring investments are being managed in line with this e.g. an investment glide path to cash and bonds is probably not appropriate if wishing to go into drawdown.
Pre-retirement – retiring well: In the years before retirement, support should be provided to help with planning for retirement and understanding retirement income options, clearing debt and maximising pension benefits and other savings in a tax efficient way. Then, around a year or two before retirement, people may also need help to implement their plan including thinking about their retirement goals, how to generate retirement income, understanding the risks, tax planning and how to seek further guidance and regulated financial advice.