Robert Cochran, corporate pensions relationship specialist at Scottish Widows, reflects on the retirement planning debate, government action on advice and how would-be investors can be helped to navigate the pensions maze
ROBERT COCHRAN Thank you Simon. In summing up the discussion, I’d say that we haven’t yet seen the best of auto-enrolment (AE), and already we can see people’s savings rates increasing. It’s been two years since the introduction of auto-enrolment and the time is fast approaching for smaller businesses to stage. Larger organisations paved the way and we’ve learnt much from this experience. It’s true that more people are saving now than ever before, but the full benefits are yet to be seen.
The 2015 Scottish Widows Retirement Report found that 56 per cent of over-30s are now saving enough for their retirement – up from 53 per cent in 2014. This is great news, but our recent research revealed that people don’t value a pound in their pension as they value a pound in their bank account. We still have work to do to help employees understand why it’s important to plan properly for retirement.
The pension freedoms introduced in April offer employees more flexibility with the money they save. But from our auto-enrolment experience, we know employees were struggling to grasp the basics of pensions before the freedoms were given. The government saying pensions could be used like a bank account starts to break down some of this complexity, and encourages people to see pensions in the same way as they view their bank accounts.
The government and pension providers alike are trying to help people understand what their choices are. But there are still gaps in advice and support for employees, particularly for those with smaller pots. There is a lot of information available and sometimes this can be overwhelming, but employers could be helping their employees to navigate these sources of information. Employers could be signposting resources such as Pension Wise, or online tools such as the Scottish Widows Retirement Planning site, which provides in-depth guidance for employees on their new retirement choices.
Gatekeepers to education
With the freshness of pension freedoms, there is an immediate need for those approaching retirement to understand the implications of their choices, but that’s only part of the picture. To truly transform the retirement prospects of employees, they need education not just on pensions but also wider finances, and this needs to happen much earlier in the employee journey.
It’s clear that there’s a growing need for employers to start addressing this gap in financial education. Employers will need to consider how they engage their employees and perhaps take on a role they’ve never had before. As we move into a more fragmented pensions landscape, it’s going to be in employers’ best interests to educate and inform as early as possible. Most employees will accumulate multiple pots through their career, and will have more choice than ever before at retirement.
Employers are the gatekeepers of advice and guidance, so they should consider how they can avoid being a blocker to support; perhaps looking at how they can facilitate access instead, and whether they should invest in their employees’ education much earlier in the employee journey. Cost-efficient ways, such as including information in mandatory AE communications, or reminding employees at three-year re-enrolment anniversaries can be good ways to nudge employees to plan for retirement. Earlier engagement and education will enable the next generation of retirees to build decent-sized savings pots and be more active in managing their retirement plans.
The Scottish Widows Retirement Report 2015
Our annual report, which is available for downloading from our website, is a great way to catch up with the latest trends, developments and options in the world of retirement planning. As well as being packed with pensions-related facts (did you know, for example, that the average proportion of their earnings that UK consumers are now saving for retirement is 12 per cent, while the number of Britons now saving enough for later years has risen to 56 per cent?), the report is packed with stats, insightful infographics and trend reports which will help you make the right decisions concerning your long-term financial planning.
To find out more about Scottish Widows visit scottishwidows.co.uk