Conversations around employees being unable to retire because they cannot afford to are likely to become increasingly common from April next year, when the government introduces radical changes to the rules relating to how individuals can access their pension savings.
Under the new rules, individuals will have total freedom over how they use their pension savings, which will mean that, from age 55, they will be able to withdraw their savings and use them to pay for home improvements, pay off debts or go on the holiday of a lifetime.
But what will this mean for employers and how should they respond?
From April next year, the flexibilities will mean a workplace pension scheme will essentially become a workplace savings scheme and employers’ pension contributions will no longer have to be used by staff to secure an income in retirement.
This means that employers could find themselves in the scenario described above, where staff that have paid a decent amount into their pension scheme and had the benefit of employer contributions still cannot afford to retire because they have already spent their pension savings.
Given that employers will not be able to force their staff to use their pension contributions to secure an income in retirement, they may wish to consider ways in which they can influence what employees do with their savings.
This could include, for example, providing staff with financial education and training and/or rolling out a communication programme to help them understand their income needs in retirement and what steps they can take to achieve their retirement ambitions.
However employers respond, the way in which they, and their staff, view ’pension’ saving is set to change radically.
Tim Smith is senior associate in the pensions team at Eversheds