Survey results reveal the major concerns Trustees have for retiring members.

WEALTH at work has conducted a survey with the Pensions Management Institute to investigate the concerns Trustees have for their members in the run up to their retirement and what support provisions they have in place.

Some of the key findings include;

• 92% of Trustees fear their members approaching retirement will be targeted by scammers.
• 88% of Trustees are concerned that their members may not understand the tax implications of accessing their pension.
• 86% of Trustees have concerns about their members’ lack of understanding of the risks they face if they transfer out of their DB scheme.
• 73% of Trustees are apprehensive that their members’ money will run out too soon in retirement.
• 70% of Trustees worry about a lack of engagement with their members at retirement.

Jonathan Watts-Lay, Director, WEALTH at work, comments;

“As the findings show, nearly all Trustees fear their members nearing retirement will face predatory attention from scammers. The strain on household finances caused by the cost of living crisis could mean that some members are more vulnerable than ever this year.”

He adds; “Trustees also have fears around taxation for their members at retirement. They are right to be concerned as individuals can easily incur huge tax bills unknowingly when accessing their pensions, all of which can have a material impact on income levels in retirement. There are various strategies which can be taken to create tax savings opportunities but members may not be aware of them.”

Watts-Lay comments; “These risks also equally affect defined benefit members who are considering transferring their pension. Indeed, the majority of Trustees in our survey have concerns over this. It’s unclear yet if the measures put in place to enable Trustees and scheme managers to block or pause suspicious transfers have helped the situation. However, whilst this might be an effective measure to help prevent pension transfer scams, there is still the issue of people needing a clear understanding of whether the pension transfer they are planning to make is suitable and how to manage the money once transferred.”

Watts-Lay states; “When we consider all these risks, it’s unsurprising that so many Trustees are concerned that their members’ money will not last the duration of retirement. This may be due to not saving enough throughout their life. The Pensions Policy Institute published a report warning that most of those currently over 50 do not have adequate funds to achieve a ‘comfortable’ retirement as defined by the Pensions and Lifetime Savings Association. Additionally, the pension freedoms and the shift from defined benefit to defined contribution pensions, has very much put longevity and investment risk in the hands of individual members, and poor decision making at retirement can be far too easy.”

Support levels are encouraging – but more can be done

The survey found that half of Trustees provide financial education (50%) for their members at retirement, and almost half (48.5%) of Trustees provide or facilitate financial guidance for members at retirement.

Nearly two out of five (39%) Trustees are facilitating regulated financial advice for their members. Encouragingly, this has seen a 9 percentage point increase from 30% since the survey was last carried out in 2021.

Watts-Lay comments; “The financial decisions that members need to take are increasingly complex. Pension Freedoms which came into force in 2015 have firmly put the control in the hands of individuals, but with this comes increased risk. It is likely that those who do well are those who are the most informed. Unfortunately, many find this whole area very confusing and are fated to make mistakes. As more and more people retire on defined contribution savings alone, this situation will only worsen unless these challenges are overcome.”

He adds; “This against the backdrop of a global pandemic, and more recently the cost of living crisis, will only add to the already significant challenges that members and schemes face. In the current climate, it is not surprising to see that Trustees have so many concerns for their pension scheme members as they approach retirement.”

Watts-Lay explains; “It’s encouraging to see that a significant proportion of Trustees are providing support in terms of financial education, guidance and regulated financial advice to alleviate some of the risks at retirement. Many of the Trustees surveyed are concerned over a lack of engagement with their members, but financial education and guidance can overcome this. Whilst information may be provided via a website or leaflet, if’s far more engaging for individuals to have someone to actually speak to about their pension savings. This could include face-to-face seminars or digital solutions such as interactive online seminars, or even financial coaching over the telephone.”

He adds; “The earlier support is provided in an individual’s life, the more likely they are to make better decisions. Also, income needs are likely to vary throughout what may be 25 years or more in retirement and cognitive decline may hinder decision making, meaning that ongoing support is likely to be required.

Carrying out due diligence on providers can make the process far more robust. This should include checking that any financial education and guidance providers are workplace specialists with experience in providing support to members. Due diligence on regulated advice firms should cover areas such as the qualifications of advisers, the regulatory record of the firm, compliance processes (e.g. compliance checks of 100% of cases), pricing structure and experience of working with employers and Trustees.”

Watts-Lay concludes; “Ultimately, empowering members by providing them with access to appropriate support at the right time, can improve financial capability and resilience, which should result in better retirement outcomes for all.”

Tim Middleton, Policy and Affairs Director, Pensions Management Institute, comments;

“The range of choices available – and the increasing scope for mistakes and exposure to fraud – has made Trustees aware of the duty of care that they have to members approaching retirement age. The minefield of choice has given members the opportunity to use their retirement benefits in ways that closely match their specific requirements. However, with this choice comes a range of risks. Members are commonly unaware of the tax implications of their choices, and many fail to understand the nature of longevity risk.”

About the survey

The survey conducted by WEALTH at work and Pensions Management Institute received 64 responses from a range of Trustees. It was completed online from January to April 2022. Figures have been rounded to the nearest whole number or to 1 decimal place where necessary. Click here to see the full results report.