Retirement is no longer a one-day transaction. In generations past, decades-long loyalty at a corporation was awarded with a clock, a leaving party and a final-salary pension scheme.
One size no longer fits all when it comes to pensions and benefits
Now, it is increasingly unlikely for a retiree to be working full time one day, and not the next. As a result our attitudes towards pension saving must catch up to the reality of retirement.
The recent changes to the pension system mean that workers can define their own outcome – but just because the compulsory annuity has been scrapped, does not mean it is going to be any easier to achieve financial security in retirement.
“I expect that annuity rates will still be used a barometer of pension success,” said Lydia Fearn, investment consultant at Barclays Corporate & Employer Solutions.
“That calculation can clearly show the size of pension pot required to deliver a comfortable annual income in retirement, and it is not small.”
The changes have if anything increased the need for increased education, awareness and engagement on pensions.
According to figures from life assurance company LV the average annual income drops by two thirds upon leaving the workplace, and a third of women approaching retirement expect to have to work longer than previously anticipated, compared to a quarter of men.
Despite these extended working years, the average worker retires with an annual income a fifth less than the minimum wage.
Fearn’s colleague Paul Wilson said that while most homeowners could accurately estimate the size of their mortgage, very few workers could judge the size of their pension.
This lack of knowledge is leaving those at retirement with a stark reality.
It is not just workers who require education to help them adjust to the changing face of retirement. Fearn says that one of the biggest challenges she faces is explain to clients that pensions are an ongoing concern – companies not just provide a tidal wave of information when their employees join a pension scheme.
“The biggest concerns are around the default pension scheme’s strategy and member engagement,” she said.
“Our research shows us that members are expecting their employers to be the ‘guiding light’ on pensions. They are looking to employers to lead and guide them on pensions. They learn about auto-enrolment from the employer and expect them to keep them informed about pensions going forward. However, HR departments are not terribly well-equipped to deal with this currently. They don’t have the structure to support workers.”
There are also challenges concerning legacy schemes, pensions that pre-exist auto-enrolment and are running different strategies, at a different cost, for half a company’s employees.
“One size no longer fits all when it comes to pensions and benefits in the workplace,” says Paul Wilson of Barclays Corporate & Employer Solutions.
“A baby boomer may own their own home, maximised their ISA, benefited from the stock market and property booms of the Nineties and even inherited money. They could be working alongside a member of generation Y who is saddled with debt from university, lives in rented accommodation and has no cash savings – let alone investments. We need to tailor the employee offering, and education, to each age.”
Wilson argues that in order to encourage employee engagement – and loyalty – companies should be looking at what they can do for their workers, not just in the form of pensions but with benefits, workplace ISAs and save as you earn schemes.
These schemes could help improve workers financial well-being, which will in turn should ensure they are able to enter retirement in rude monetary health.
