We live in an age of information overload and, with a new mobile device constantly around the corner, it has never been easier to access information about almost anything, including our finances.
Despite this, news headlines highlighting unfairness in the annuity market for those who are retiring and will buy an annuity now (about 400,000 people a year) are commonplace.
Data from Money Advice Service annuity comparison tables at 3 February 2014 suggests that, of employees and pension scheme members who relied on their existing pension provider, which is more than 50% of all annuity purchasers, only about 6% got an enhanced rate based on their health or lifestyle factors. This indicates that they were at a disadvantage compared to the 45% or so that shopped around or took advice.
The Financial Services Consumer Panel recently claimed that the annuity market is complex and does not work well for most consumers. Interestingly, feelings of apprehension and anxiety were commonly found.
Around the same time, The Pensions Regulator, in its Regulatory guidance for defined contribution schemes, published in November 2013, placed far more emphasis on the importance of making information and education about options at retirement available to pension scheme members at a much earlier stage in their careers, describing an ‘ongoing education and warm-up process’ that begins 15 years before retirement.
A recent survey Wealth at Work conducted among some of the UK’s largest employers and leading HR, reward and pensions professionals found that only 14% believe their employees are aware of the various income options available to them at retirement, and more than 50% believe their employees are not aware they do not have to buy an annuity.
Encouragingly, 83% of employers considered professional retirement planning, including education, to be a critical need for their organisation. This is crucial given that other research suggests that more than one in 10 of the UK’s retirees admitted they spent less than an hour arranging their retirement income.
Access to information
Access to ‘information only’ is clearly not the answer in helping staff understand their retirement income options. The answer is education, which is key to helping employees understand the options available and the pros and cons of each option, to ensure they can make informed decisions.
I recently attended one of our own seminars for a corporate client. The presenter was educating about 20 employees who were two years or less away from their chosen retirement dates. He was helping them to understand not only their employer-sponsored pension plan and share scheme options, but also their broader finances.
He summarised the session like this: “Education is about what you can and can’t do, and I hope I have helped you understand more. However, it doesn’t tell you what you should do; for that, you need to take advice.”
It is a sobering thought that thousands of pounds can be lost by poor decisions at retirement, especially after a lifetime of saving in a workplace pension scheme. I would suggest it is time all employers provided access to financial education programmes supported by advice.
Jonathan Watts-Lay is a director at Wealth at Work