Pensions 101


Neil Atkinson

Head of Proposition

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Financial wellness is a hot topic, with pensions being at the very core. In fact, 25% of employees have little or no chance of their pension’s savings funding their retirement*.

As Head of Proposition at Thomsons Online Benefits, I am frequently asked questions about pensions, ranging from whether they are the be-all and end-all to how much you need to pay in to ensure a happy retirement. Read below for the answers to help you think about how you can support your employee’s financial wellbeing.

Are pensions the be-all and end-all for retirement savings? What about using property and non-pensions savings?

There are other forms of saving, including investing in property, the stock market and other such investments. However, pension saving offers unique advantages including tax relief on contributions and competitive charges. What’s more, it is possible to invest in many asset types such as property indirectly via your pension provider’s platform anyway.

What would you recommend as the minimum amount to pay into a pension?

How long is a piece of string? Typically, a good rule of thumb is a total percentage equal to half of your age. Another good tip is a total of 15% of salary on an average of your whole working life. What is certain is that the earlier you start saving and the more you can save, the greater your chances of meeting your retirement goals.

How do we help our younger people make a decision for pensions vs. saving for an asset?

It is great to see that more and more employers are viewing pensions as just one component of financial wellness, recognising that younger individuals may want to focus on getting onto the property ladder or clearing debt before pension saving. One solution is to ensure your people hit minimum pension contributions under Auto Enrolment (AE), but then allow them to redirect everything else to a Workplace ISA where funds can be easily accessed when needed.

An extremely high percentage of my employees are going to the default fund – should we be encouraging more individual fund choice?

Choosing your own investments isn’t for everyone. That’s why default fund options are available, to allow individuals to benefit from managed options that automatically move funds from higher growth assets into lower risk as the individual approaches retirement. But self-selection of investments can improve engagement with the pension scheme, so communications should remind employees of their options.

Do savers really care about ESG? And if they do, what is the best way to find ESG funds?

ESG (Environmental, Social and Governance) refers to the three central factors in measuring the sustainability and ethical impact of an investment in a company. For many the concern will be generating high enough investment returns to certify their funds are sufficient enough for them to stop working. When implementing, ensure there are plenty of investment options so all employees can choose the right path for them.

Lots of my employees are interested in cashing in their defined benefit pensions schemes – should I help them do this?

This is a major headache for the FCA, with pension scams an increasing problem since the introduction of pension freedoms. Increased flexibility at age 55 has encouraged unscrupulous companies to sell the concept of giving up generous defined benefit pensions and transfer to money purchase plans to access them earlier – employers have a duty to educate staff on these dangers and underline the importance of seeking independent financial advice from trusted partners.

Do you think Automatic Enrolment opt-out rates will increase next year?

The opt-out rates following the 2018 Auto Enrolment contribution increases were much lower than they might have been, suggesting employees are becoming increasingly engaged with pension saving. The increases next year may however be too much for some – as with any legislative changes, timely and clear communications can prepare your employees in advance and help to sell the benefits of the increases coming into force in 2019.

Financial wellbeing needs to be a key part of an organisation’s people strategy so that employers can support their employees properly. Hopefully some of these answers have been able to help you with your pension-related questions.

If you would like to read more about helping your employees with their pensions, view our infographic on Why employers should lend a helping hand.

*Statistics from Thomsons Online Benefits' UK Employee Benefits Watch 2018 report

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