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"Yes, of course our company has a retirement strategy; we have a pension."
If I had a pound for every time I heard that I could well…afford to retire!
Let’s get something straight: a pension is not a strategy, it is a product and enabler at best - and at worst a flaccid, complex, fear-inducing enigma. Pensions were created to deal with the guilt of long service when people stayed loyal to an organisation for 40 years, got clocked off at 65 and popped their clogs at 66.
It is hard to disagree life was simpler back then, especially since these pensions were predominately DB, providing a generous percentage of salary. But this is now, not yesterday - and things have changed. Pensions are primarily DC and any risk invariably sits with the member. A lack of financial education has left many still thinking their £20 per month contribution will equate to holidays to the Caribbean, not day trips to a foodbank.
Ultimately, we are consumers, but employers offer little to no honest engagement like what is done in the retail sector. When we should be shouting loud messages around balancing affordability and aspiration, instead we paint the retirement picture as two silver foxes strolling merrily hand-in-hand on golden sands - please!
The biggest concern for HRDs over the next 5 years is the ageing workforce – which our research as part of The Wellbeing Agenda has shown. This is really no surprise when you consider the combined impact of State retirement ages being pushed back, increased longevity and changing legislation to prevent age discrimination.
The “magic wand” effect that pensions once had is failing, and failing badly. Despite membership figures of pensions being at an all-time high, average pot sizes apparently hover above £30k. The reality for the millions approaching retirement is that unless they are willing to compromise their standard of living, they will be simply unable to retire. A pension for these people is too little, far too late.
Is this a problem for companies? Well - it depends. You could argue that older workers are loyal and more resilient, but for every pro there appears a con - such as blocking promotions and cost of benefits.
To me, there needs to be a four-line whip.
- Get people engaged in a pension. It really is never too late if not thought of in isolation.
- Make people think more holistically about their wider financials. A house is a home - but it is also an equity release option. Help by providing an IFA service or presentations; it will be worth it.
- Think about your work practises for those in their later years. Are you pushing part-time or job sharing? If not - why not?
- Lastly, adopt health programmes targeting older employees so they remain fit and active for longer. While, yes, you could remove them on grounds of capability - but many parental organisations will not even consider this in favour of a nice unfunded pay off… and what message may that send to others?
For younger employees, saving should become a lifetime choice, but the starting steps should be understanding their finances today. Help them in creating budgets and providing a holistic savings framework to help them along their savings path - remembering for 1 in 4 that journey actually starts with debt.
The sad truth is that UK plc has sleepwalked into a retirement crisis, and you - the employer - are about to pick up the consequence.