Wise up to the needs of our future retirees
GONE ARE the days when employees simply had to pay regular contributions into a definedbenefit pension to have a reasonable idea of how much they would live on in retirement. Now, in a defined-contribution-dominated world, with no default retirement age and few guarantees on the amount of money an employee can expect at the end of their working life, greater financial awareness and education are more important than ever.
There are two sides to financial education, both of which are essential if employees are to understand their pensions and, equally importantly, manage their own money more broadly. The first aspect is better public awareness of personal finance planning; the second is the role that the pensions industry specifically can play.
General awareness needs to start early. We are starting to see moves to introduce education about personal finances into school and this must begin at an early age. However, although improving education in schools is a good starting point, there is still a vacuum of understanding about savings and debt management that needs to be bridged once individuals enter the workplace.
Auto-enrolment has helped close that vacuum and enabled people to manage their funds and finances. It has also provided opportunities for the financial services industry to offer additional support in the workplace.
I believe our industry has a moral obligation to help employees and consumers become better educated about the need for saving. While pension providers may focus on information related to their own products, if that information is delivered in an accessible and appropriate format for the audience, it will still be of value. Clearly the impending introduction of the Pensions Dashboard (a platform that lets savers see all their pension pots in one place) should also assist.
The introduction of pension freedom means financial awareness is vital as people approach retirement. Personal contact is by far the best way to help members understand their options and ensure they get what they want and need from retirement products. Members will also need to make choices concerning whether or not to take tax-free lump sums at retirement and assess whether such lump sums represent best value. Anecdotal evidence has shown that as many as 50 per cent of employees actually now want something different from the traditional approach of an annuity.
Whatever the means of delivery, where does the boundary lie between communications and education? They are both part of the same thing. Communication is about delivering the right information to the right people in a form they can use. Good communication can help create self-educators, provided those communications are as clear and straightforward as possible and are sufficient to help people make educated judgements.
Dave Carstairs is business development director at Cartwright, 01483 860201, cartwright.co.uk