UK 
United States
In the UK and indeed globally, we’re grappling with demographic change. Overall, we’re all living longer than ever, but this is leaving society and businesses with a retirement challenge. A recent report from the ONS suggests that by 2039, the number of people eligible for the State Pension in the UK will rise to 16.5 million – an increase of over 30 percent on today’s levels. Insufficient preparation will place a huge strain on public resources, and risk leaving millions of people suffering a decline in their quality of life in retirement.
With this in mind, it’s more critical than ever that we encourage people to start saving for later life now. The challenge, however, is that there are now a number of factors impacting the way we prioritise and engage with our pensions, that mean this is easier said than done.
1. Social change –There is no longer ‘a job for life mentality’ in the UK – it’s likely that people will have six or seven employers across their working lives; by the time they reach retirement, they’ll have several pension pots to manage.
2. Legislative change – The increasing real cost of pension advice, changes to tax relief, and auto-enrolment have all muddied the waters around pensions. While people are being given more autonomy and flexibility than ever, many are not being equipped to make important decisions for their future.
3. Business change – The shift to auto-enrolment has triggered the demise of Occupational Pension Schemes and the rise of Contract Based DC Schemes & Master Trusts, transferring the onus for pensions planning from the employer to the employee. This, combined with changes in the shape of the UK workforce – with a rise in zero hour contracts and more frequent job moves – is placing pressure on employees to secure their own retirement outcomes.
4. Technological change – Technology is driving change in the way people interact with their pension schemes. It’s facilitating flexibility and visibility, so that we’re likely to see pensions become more like bank accounts, which we can access whenever we want. Employers need to acknowledge and make the most of this.
Employers and employees across the board are struggling to deal with these changes, but some generations are faring better than others. While baby boomers are relatively well-prepared for retirement, Generation X have more financial pressures – plummeting retirement planning down their list of priorities. For Generation Y, retirement is a difficult concept. In 40 years’ time retirement as we know it will have completely changed, meaning that this generation is almost solely focused on solving short-term financial challenges. And these are numerous. Household savings are at a record low in the UK, while debt is spiralling out of control. The result is an increase in financial stress among employees, with knock-on implications for businesses.
How can a retirement strategy help you?
Employers need to prioritise developing financial wellness across the workforce by looking beyond how they’re helping employees prepare for retirement, to how they’re helping them meet day-to-day financial challenges.
Segmenting your workforce is a good first step. Baby boomers, Generation Y and Generation X all have very different requirements and aspirations – and these need to be considered. Technology can help with this. For example we’ve developed technology that enables employees to pick from a menu of options – from corporate ISAs to financial advice – enabling them to personalise their experience to best meet their needs.
So what now?
Reviewing your approach to employee financial wellness can be a daunting process, so it can be helpful to take a two-fold approach.
Tackle the short-term challenge. Consider what options you provide; how you measure success and if engagement is a problem – what are the alternatives and how can this be improved?
Evaluate the longer-term view. For a more holistic approach to financial wellness take the time to really understand your people and the risks that their poor financial health could pose to your business; will people leave or costs increase? Identifying these factors is an integral step in mitigating them.
Fundamentally, adapting to a financial outcome approach will benefit businesses and employees. Getting employees to pay into their pension scheme may not be a realistic priority for some. The sooner employers understand that financial wellness means something different to every employee; the sooner they’ll be able to design a suite of benefits to improve financial wellness across the board.
--------
Thomsons Online Benefits’ recent webinar – Is Everything You Know About Retirement Wrong? - looks at the future for UK pensions, and the impact of the market shift towards wider financial wellbeing, with practical examples of the latest innovations to ensure you stay at the forefront of your industry. Find out more and register for the webinar recording.
This article was written by David Dodd, Head of Pensions at Thomsons Online Benefits.
