Auto-Enrolment was the subject for discussion around pensions, particularly, corporate pensions. More recently, the abolition of the Default Retirement Age, has knocked AE off the top of the agenda. Martin Palmer, Head of Proposition, Corporate Benefits at Friends Life, advises that employee empowerment comes from planning and knowledge.
Employees have a right to work as long as they would like to and are no longer forced to retire at a pre-determined age, is actually of greater significance to many, particularly in terms of wider workforce planning. Given that the new mantra seems to be ‘I’ll work until I’m 75’ rather than ‘I’ll downsize my house and live off the capital’, employers are facing the reality of managing an ageing workforce. That means a whole set of new challenges! Though someone might want to keep working, are they still fit enough to perform the same role, to the same level they have been working at? Are they considering part-time work? And what can we offer to those who are setting out and planning their career? Retaining talent becomes harder when there’s no guarantee of senior vacancies opening up.
What’s clear in all this is that employees need to have a choice, and at its most basic, that is the simple question: could they afford to retire, if they wanted to? The first step here is to ensure good pension scheme design, with appropriate default contribution rates and investments. Those who only pay auto-enrolment minimum contributions will struggle, as that will not provide enough for a comfortable retirement. Drawing on industry quality marks such as NAPF’s, total contribution rates need to be ten percent to achieve a quality mark or 15 percent in order to be considered for a quality plus scheme. You also need to think about investment selection, and how this can be adapted to fit evolving retirement plans. Providers offer de-risking strategies as retirement approaches, but if you don’t know when an individual plans to retire, you don’t know when such strategies should come into play. The answer lies in engaging employees in fund selection, however challenging that may seem.
If your employees plan ahead, you can plan ahead. It remains a difficult message to younger employees, but the earlier you start to save for your retirement, the easier it will be to have sufficient funds in order to retire when you want. Employees need to plan as early as possible and keep monitoring progress. Planning tools help employees get a proper insight into how their decisions about contribution levels and fund choice affect their retirement income. Employers who can offer a wide variety of tools and include face-to-face guidance, seminars (offline or online) or online interactive guidance can see a much bigger uptake of their pension provision. Employers and employees alike need to honestly consider what each other can offer. If employees need to move to more flexible working arrangements or maybe job shares, is that going to be possible? Older employees can offer significant benefits to businesses but wide-scale flexible working may be a significant challenge in some industry sectors. By discussing these issues openly, employers and employees can ensure that both partners can benefit from abolishing the default retirement age.
The challenges of managing an ageing workforce can be overcome by making the transition to retirement available and affordable and by emphasizing the advantages of offering a wider corporate platform as your benefit package. First and foremost, allowing employees to save in a variety of ways, not just through a pension, can really help drive engagement: without this, employees are unlikely to accumulate sufficient funds for the kind of retirement they hope for. Secondly, corporate platforms offer the tools employees need to forecast values of pensions and other savings plan options, and provide a way to consolidate them where appropriate.
Planning tools will help employees understand any existing savings gaps and show them how they can fill this in the years before retirement. Enabling online communications can empower genuine conversations among scheme members to help engage them with their retirement planning. Abolishing the default retirement age brings many challenges for employers but, by working together with employees, these can be managed effectively. Life expectancy is growing and as a nation we need to face this head on. Retirement is no longer something which happens to us, it is something which each one of us needs to make happen.
