How to help your staff with at-retirement choices
Employees approaching retirement need to know exactly when they can retire and what their options are. Here’s how you can help.
As employees approach retirement, they obviously need to know what options they have, as they start to consider when to stop work. Making the wrong decisions can impact on their retirement lifestyle and plans.
Some employers provide their employees with information and support, but this is not always the case. So as an employer, how can you help your employees get the right financial guidance and advice, to help enhance their future quality of life?
The key starting point for staff is appreciating when they can afford to retire, This entails understanding their financial situation, how much more they need to save into their pension pot, and whether or not they need to continue working.
For employees starting work today, most will be enrolled in a defined contribution (DC) pension scheme. However, there are many in their 40s and 50s who missed out on defined benefit pensions and were working before auto-enrolment was introduced. Because of this, they will most likely face a pension shortfall.
Three main options
When it comes to retirement, there are three main options available with your DC pension pot – buy an annuity, use drawdown, or take it out as cash. Most tend to opt for a combination of the three.
Drawdown has been the option of choice for many over recent years, but higher interest rates have made annuities an attractive option once again. This shift underlines the ever-changing nature of retirement planning, as market conditions as well as member preferences impact on the choices made. Given this dynamic nature, financial advice from a qualified financial adviser can be invaluable.
Many employees, however, want to access their pension pot cash as soon as possible. This can obviously have tax implications if they withdraw beyond their tax-free limit and so again, financial advice might be useful.
One option here could be an uncrystallised funds pension lump sum (UFPLS).
Communications and guidance
There are several ways in which employers can help their employees as they approach retirement.
The first way is to direct them towards the free government websites available for money and pensions advice. For example, Money Helper provides impartial information and guidance, as well as having digital tools for you to use to help you with your pensions, retirement, and investment options. MoneyHelper’s Pension Wise also offers retirement options appointments for staff aged over 50.
Another way is to use your pension providers. They can provide information via letters or emails and many have educational websites. You may even be able to get them to come to your offices to do some face-to-face presentations or failing that, a bespoke webinar.
However, an increasingly popular trend is for employers to sponsor individual financial advice sessions with a qualified financial adviser, as employees approach retirement. These can be funded wholly or partially by the employer and can be invaluable, as they offer tailored advice specific to the individual’s needs. These can be done via Zoom or Teams, but face-to-face sessions typically generate the most engagement.
In the communication process, it is important for employers not to be seen to be pushing people towards retirement or offering financial advice themselves.
Employers need to be aware of the difference between guidance and financial advice. Guidance can provide staff with information about the range of options available to them but should not recommend any one option over another. Financial advice informs employees which specific product would best suit their needs.
Employers can provide guidance, but financial advice must come from qualified professional advisers.
So if you need help with providing at-retirement advice to your employees, why not give us a call today?