Need to know:
- Employees of all ages need help saving for a financially stable later life, but the format and delivery will need to vary across different demographics.
- To engage younger staff, employers could consider repackaging concepts such as pension payments and retirement planning to feel more relevant.
- Throughout the 15 years leading up to retirement, information and planning should become steadily more concrete, guiding employees towards making retirement choices.
How many employees can say they feel adequately supported by their employer when planning for retirement? According to State Street Global Advisors’ Global retirement reality report, published in October 2018, 64% of UK individuals want help from their employer when it comes to planning their retirement; however, among those respondents that had retired in the preceding five years, only 35% received help during the planning stages.
Add to this the fact that 44% of staff aged between 25 and 34 are putting off saving for retirement altogether, according to the DC pulse survey published by Blackrock in November 2018, and it becomes clear that employees at all stages would benefit from support and guidance in this area.
Firstly, it is important to ensure that employees understand the value of their pensions, says Jeanette Makings, head of financial education at Close Brothers. “By taking simple steps such as offering retirement planning calculators, using clear, simple language and layouts in pension statements, and providing access to financial education, employees can improve their understanding, see how to take control and see the benefits of being more proactive with their retirement savings plan.”
Reaching the wide range of employees currently comprising the UK workforce, however, means taking a varied approach, and considering what information is helpful and relevant at different life stages.
Engaging younger staff
When introducing the idea of retirement planning, employers must consider the demographics within their workforce. Younger staff may find it difficult to visualise retirement, particularly if faced with more immediate concerns, while those who have started to consider their plans upon exiting employment will need a vastly different set of communications.
Nick Brazier, senior corporate benefits consultant at Broadstone, says: “The workplace can now have three or four generations in a pension [or] planning for retirement. So, the scheme needs to be tailored to the audience for the particular life stage they are at.”
Rather than trying to force an interest in pensions, employers might engage younger employees with other areas of financial planning, which themselves pave the way for a smoother journey into retirement later on, says Sarah Kendell, operations director at the Financial Options Group.
“Kickstarting young employees’ financial literacy means they are more likely to follow their investments closely, seek financial advice about things like investments and mortgages, and approach financial matters with confidence,” she explains. “Together, these qualities can significantly impact the likelihood of long-term financial success.”
Employers should also rethink how they communicate the concept of retirement, says Jason Butler, head of financial education at Salary Finance. For example, contributions might be reframed as ‘free money’, or extra pay that is deferred until a later point, drawing the focus away from the amount being siphoned out of the employee’s pay cheque now.
This rebranding could be applied to the whole concept of thinking about later life, which is naturally a distant one for younger staff.
“Very few people are excited by pensions, retirement or planning for a time when they’re older,” Butler explains. “A different way to present it is ‘making work optional’; who wouldn’t be interested in that? Essentially, retirement planning is about having the choice of whether or not to work, saving yourself from a future of scrimping and saving.”
When an employee is starting out in a workplace pension, communications should perhaps be less focused on the concept of retirement planning, to avoid disengaging staff who are unable to picture that far ahead. This will, naturally, change throughout an employee’s life as they move closer to a retirement date.
Approximately 15 years from retirement, aged around 50 and upwards, employees should start to build a plan and, through financial education, build an understanding not only of the decisions they are making with financial products, but also the impact of the lifestyle choices they make in the run up to, and after, retirement.
Then, 10 years out from retirement, employers should help staff look into how they might take their pension benefits.
“As employees become more informed on terminology such as flexi-access drawdown (Fad), uncrystallised funds pension lump sum (UFPLS) and cash-flow modelling, retirement becomes less of an unknown place and feels more familiar to them,” says Brazier. “They will be more likely to seek financial advice and make better informed decisions.”
Finally, five years from the planned date of their exit from work, retirement planning should become more concrete, helping an employee to have a clear idea of what they are going to do to both secure, and enjoy, a comfortable later life.
“The consideration of life expectancy, the sequence of how they take their income, health and passing on of wealth all have to be taken into account,” Brazier explains.
If efforts have been made to engage staff from an early point with the idea of financial planning, considering the future, and working towards an exit from employment, when the time comes later in life for clear decisions to be made, they will be well equipped and informed of all the options open to them. More importantly, they will be ready and willing to engage productively with planning the next stage of their lives.