Ensuring your staff make the best decisions at retirement has to be a priority for any employer, says Jonathan Watts-Lay, director, WEALTH at work

guidance

Recent data from the Association of British Insurers shows that in Q1 of 2016, 695 people cashed out pension pots worth more than £100k in full: meaning that they would likely end up paying huge sums in tax. The question is, did they realise the tax implication, or was it a nasty surprise? It does seem to suggest there are some people taking actions that are unnecessarily costly to them.

Also, as with the issues around pension cold calling and scamming, it is a common misconception that it’s fundamentally an employee/member consideration: but what should and could employers and trustees be doing?

At present it is only the most innovative employers and trustees who are realising the benefits of supporting employees with the issues they face at retirement. But as we move into 2017, employers need to look at undertaking due diligence on providers, and finding companies that can offer a full service for employees at retirement.

This includes: financial education – helping employees to understand the pros and cons of each retirement income option; regulated advice to provide individual support; and also help with the implementation of their chosen option in a tax-efficient way – whether employees decide to buy an annuity, go into drawdown or simply make cash withdrawals.

The big win in this is that employers/trustees use their buying power to put in place an appropriate service, whilst ensuring the member can benefit from lower costs throughout retirement. In other words, it does not need to have a direct cost impact on the employer/trustee but the member can benefit from lower costs and a better service in-retirement.

Some employers are struggling with the question of whether retirement is their issue or not, or whether it is just their responsibility to run the pension scheme. If an employee has saved into a pension for 40 years, and are at the point where they want to turn their savings into an income, why wouldn’t you want to help them? After all, the last thing an employer really wants is for one of their employees to be unable to afford to retire.

 

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