Many employees struggle to understand various financial issues that may relate to them and often fail to understand the many benefits on offer in the workplace. I believe employers can help to improve an employees’ financial wellbeing by providing them with the knowledge needed to make informed financial decisions, so that they feel more secure today and about the future.
For example, providing relevant financial education around different career stages will lead to improved financial wellbeing. Someone, at say age 23, may not be as interested in pensions but might want to think about saving for a mortgage. On the other hand, someone at say age 34 might want to understand both pensions and how the Tax-Free Childcare scheme operates to cope with the increasing cost of child care.
Then, there are those who may have been contributing towards a pension for many years and are now starting to think about retirement. 45 has become the new ‘latest age’ to begin planning for retirement. It’s a move from the traditional idea of educating those just a couple of years away from retirement but is more effective as given the new rules, choices need to be made much sooner so that employees are able to choose an appropriate ‘glide path’. (By glide path we mean a chosen investment route that will take an employee up to the point of retirement and potentially beyond.)
In a recent survey conducted by WEALTH at work*, 43% of employers said they did not provide a choice of glide path covering the three core retirement options of drawdown, annuity and cash. Whilst scheme demographics and pot sizes play a key role here, an employee's glide path should be in line with their planned method of generating a retirement income and take into account all of their pension savings – not just the scheme of their current employer! If employees have selected a default fund which is geared towards an annuity purchase at-retirement and they are now considering drawdown, they should consider other fund choices; for example, choosing a different mix of equities and fixed income assets than they would if they were geared towards an annuity purchase.
And, if this is the case, employees will need financial education in order to understand this and to have the confidence to make their selections.
Since the pension changes came into force, both employers and employees have had to adapt to the many new options and decisions that they now face. Many employers recognise there is still much more that can be done to support employees in the years leading up to retirement, as well as at the point of retirement but without the right financial education, guidance and advice, employees could be left incredibly vulnerable to making poor decisions.
We would like to urge all responsible employers to switch on to financial wellbeing and help their employees to feel secure today and in the future.
*WEALTH at work Pension Changes Survey. Our Survey Results December 2015