Companies must know how to help employees with the new pension freedoms, says Jonathan Watts-Lay, director, WEALTH at work
Pension freedoms have not been in place long – so many employers are still trying to understand what the changes really mean.
Many employers do not offer the flexibilities within their scheme, as implementing flexibility is not cheap, nor is it easy to put the necessary infrastructure in place. However, there is one key issue: should schemes even be considering offering the new flexibilities at all?
People must now think about their finances not just in terms of their pensions, but all savings: ISAs, shares and so on. If an individual scheme offers flexibility, employees must also consider other savings and indeed other pensions that they may have: otherwise there is a danger that they could make poor decisions.
All this complexity around retirement decisions points in one direction – financial education and regulated advice. Although Pension Wise is now available to the over-50s, it is not a holistic approach to savings; indeed it is not holistic in terms of pensions as DB schemes are excluded.
Furthermore, a lot of employees will need to make decisions ten years before retirement about asset allocation to ensure they are on the right glide path – so they have to be aware of their choices at age 45, Pension Wise will not cover that. If people want comprehensive education and regulated advice, then it simply doesn’t do the job.
Financial education should be a priority for employers – there is a risk that without appropriate education employees might not understand the implications of a decision made at retirement or may end up depleting their pot before retiring, and thus be unable to afford to retire at their preferred date. Regulated advice is a really important facility to be available to employees, to help them make the right choices.
There is a real worry that people will buy products and not really understand what they’re buying. If they take ongoing regulated advice, they should get the right product or service, and they have the safety net of greater consumer protection.
We provide the full package for employees: the financial education, to help them understand the pros and cons of each option, and regulated advice for those who think it’s too complicated and need further help. We can also help to implement retirement choices in a tax efficient way.
Employers and Trustees can no longer say they are unable to offer the new pension flexibilities as by going to the right supplier all is available as a one stop shop.