It seems strange that throughout our working careers, employers take the time to nurture, develop, pay and promote employees to get the best from them, yet when they start to near the end of their career we do not make the extra effort to ensure they understand all the options and information available to them. Nearly half (49%) of employers still do not offer courses or guidance to help employees make informed choices about retirement*, yet 66% of employers feel duty bound to deliver education and advice around pensions* to protect their employees. But where do you start?
There are two key areas to cover when employees start to think about stepping down from full-time employment – their health and their wealth. We want everyone to lead a long, happy, healthy and wealthy retirement for what might end up being a third of their lives – so, here are some of the most important topics that should be on everyone’s checklist.
Have employees thought about retirement?
While it may seem like a daft question, you would be surprised just how many employees do not take a long-term view of a) where they are going and b) what they are going to do when they get there. Planning for what to do once work is out of the way could involve anything from taking up adrenaline sports to going back to further education. Therefore, anyone who insists adequate planning is “we are going on holiday” may find themselves very bored very quickly – no matter what anyone says, no one can spend a third of their life on holiday!
Whatever plans are made, it is important they involve social groups, as research has shown this is key to maintaining activity levels and mental stimulation.
Pension freedoms
It goes without saying that this topic has been relentlessly communicated to employees of companies across the UK and yet some employees still do not understand it! The idea that you can do what you want, when you want still causes confusion, so laying out people’s options in clear plain English is essential. It is imperative to cover this issue with colleagues approaching age 55 as fraud and financial crime is directly aimed at people with access to pension drawdown. Financial and pension-based fraud almost doubled in 2021 with losses averaging over £50,000 per victim**.
Tax
We have a pretty complicated tax system here in the UK, so it is no surprise some people give up trying to understand their position before they have even started. Generally, if employees are drawing their savings from a defined contribution pension scheme, any money after their tax-free cash will be classed as income, so will therefore be taxable. So that they do not end up with a huge (and unexpected) tax bill, it is essential they manage what they take and when.
Educating employees while still in work can make a big difference here – maybe in using Individual Savings Accounts (ISAs) to save so they can ‘top up’ their pension from a tax-free source, potentially reducing that all-important tax bill.
State pension
So many employees either forget they have a state pension or believe it will not be worth much, so do not value it. However, if you are on the maximum £179.60 per week, that is an annual income of £9,339.20. And if you and your partner are both receiving this, then your household income would be an extra £18,678.40 a year. So, it is not to be forgotten or undervalued!
Historically, in many circumstances, our pensions used to die with us. Of course, there were spouse’s pensions and other variations on the theme but essentially, annuities and defined benefit pensions ceased payment with the death of the individual unless specific provision was made. Now, though, things are different, with us managing our own pots meaning there might be some money left over. Therefore, we need to make sure it goes to who we want it to go to.
Wills and powers of attorney
Making a will can be an important provision at any age, for planning for the future of your loved ones. Additionally, who is going to look after us if we have a mental or physical health issue? All these questions can be addressed through powers of attorneys.
If an employee has given you 30 years’ service, it should not be too much trouble to give them back a half-day or a day so they can speak to an expert to arrange their affairs. They will be healthier and wealthier for it!
*Mattioli Woods Insight Report 2020/21
**Financial Conduct Authority (FCA) and Action Fraud research July 2021
