There are many ways for employers to support their staff dealing with the pension changes, says Jeanette Makings of Close Brothers
Lowering the age for Pension Wise to 50 has shown that the government is doing more to encourage those approaching retirement to get pension guidance, and around a third of employers are now using it – but neither they nor their employees are clear about what specific support they will receive.
Pension Wise is a great resource but it is limited, as it only targets those aged 50 and over and it can only provide generic guidance.
So for those employers who haven’t been able to put their own provision in place, or for smaller employers who either can’t afford to or haven’t yet got a financial education strategy in place, it is likely to be a good first step.
But many employers, recognising that providing support to their leavers is essential, are implementing or strengthening their own financial education support programmes. Some are promoting Pension Wise alongside their own support – and others have dedicated programmes that reflect their own culture.
SO WHAT IS BEST PRACTICE?
At a minimum, employers should be communicating the pension reforms to staff: instead of relying on the fact that they’ve heard about them in the newspapers, they need to be revisiting their communication strategies and retirement materials, to ensure that everyone in a defined contribution (DC) scheme understands that things have changed and that their choices have been widened.
Most importantly, those in the glide path to retirement must understand the impact of the changes. They need support to help them make big decisions and to ensure that they’re not throwing away the valuable benefit that they’ve spent their whole career building up. Most people will not be able to right a wrong decision at that point, and are vulnerable if they’re not well informed or well supported.
For those who understand the benefit of providing more than the minimum, what is the gold standard?
- Dedicated seminars for those in the 12 months prior to retirement that address the lifestyle, pension and financial planning aspects needed
- Access to financial advice for those making pension decisions at retirement. This can be via one-to-one clinics or referral to an approved panel of advisers, to the wealth manager delivering financial education, or to the Financial Conduct Authority’s list of registered advisers
- Targeted communications and seminars/webinars for those in the default fund in the 10 years ahead of retirement. They need to understand the impact if the default fund moves them into lower-risk assets as they approach their retirement age
- Communication to all pension members of the reforms and accessible financial education, tools, modellers, guides and case studies
- Engagement exercises for all staff to help them to understand their pension savings and take increased interest in the impact of their own decisions throughout their savings journey
- Ongoing regular pension engagement communications and education such as annual ‘pension wellness’ clinics
- Support via education and access to advice for those affected by annual and lifetime allowance limits
- Support via education and access to advice for those considering transferring from a defined benefit pension
- Making your pension portal easy to use so all employees can regularly review and change their contributions, their fund investment choices, their retirement age as well as their nominated beneficiary
THE WIDER IMPACT
While the reforms are specifically targeted at DC pensions, they are also having an impact on DB pensions, with an increase in enquiries about transfers out of DB schemes.
It is recommended that anyone considering a transfer should take advice before making any decision and it is a legal requirement that anyone with a pension fund of £30,000 or more must take advice before a transfer can be approved.
Giving up a guaranteed income in retirement is not to be taken lightly and there will typically be a few people with very specific circumstances for whom a transfer would be a recommended course of action.
A service that provides education, followed by access to specialist pension transfer experts is the best route to help people in these circumstances.
DB pension transfers are a very specialist area of advice and not all advisers will be able to help, so it is imperative that employers and trustees understand the need to direct individuals to advisers with suitably experienced pension transfer specialists, or a service that can deliver this type of advice.