Given cost of living worries and the notion this may be impacting pension savings, WEALTH at work conducted research* with employees to find out their thoughts into what’s happening in reality.
It found that whilst a minority (13%) are taking action now and either reducing or stopping pension contributions, more worryingly, many more admit they may consider stopping payments (29%) or reducing payments (30%) in the future.
Jonathan Watts-Lay, Director, WEALTH at work, comments; “It’s important for individuals to understand that opting out of their pension will have a huge impact in the long term and will cause damage to their standard of living in retirement. Whilst reducing contributions now would make relatively small savings each month, the impact on retirement savings in later life will be dramatic, due to lost employer contributions and tax relief.”
It’s therefore more important than ever to ensure employees are engaged with their pensions. See our steps below to help increase employee engagement:
1. Empower employees with financial education
Whilst some information may be provided via a website or leaflet, actually attending an interactive financial education workshop about pension options and retirement income options is far more engaging. This is why increasing numbers of leading employers are using either virtual or face-to-face seminars to help their employees.
This should be tailored by career stage including:
- 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 for those 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.