Pension reform is accelerating the need for workplace financial education
By Darren Laverty, Sales and Marketing Director at Foster Denovo
On 6th April 2015, the Government introduced the most radical pension changes in almost a century. Anyone aged 55 or over now has the freedom to choose whether they keep their pension invested and draw on it as needed or even cash in their entire pension pot.
The changes affect those with defined contribution pensions, who need to turn their retirement pot into an income, unlike those with final salary or defined benefit pensions who will have a set income provided for them. It is therefore essential for anyone approaching or planning their retirement to understand the choices they have and the implications of any actions they choose to take.
What we aren’t seeing is people (in their droves) blowing their pension savings on fast cars or holiday homes overseas. But I don’t think we can provide any proper analysis for another six months or so…
Whilst many will welcome the opportunities that pensions freedom will bring it may make decision making more complex. Equally, many are also questioning how effective the Pension Wise programme will be.
Since we launched our Workplace Financial Education programme at the end of 2014, we have started talking to a large number of companies, and their focus this year is educating employees on pensions freedom. It seems to be turning a ‘nice to do’ into a ‘must’, and creating a sharp focus on the need for financial education.
Pensions freedom seems to have accelerated the need for something that is already building, and creating a real focus on workplace financial education. Large numbers of employers feel morally obliged to support their workforce – to help them in making the right decisions at retirement and for their financial future. And, rightly so, retirement is not just about the pension, it is about the rest of that person’s life, and the journey that they will follow.
Employers need to recognise the value of offering such a programme, and the fact that it will lead to staff loyalty and engagement.
A workplace survey we conducted in October 2014 identified that nearly three quarters of employees said financial education being offered made them feel more positive about their employer. 23 per cent stated it made them more loyal and interestingly, the most loyal were those in the 16-24 year age bracket where this figures rose to 43 per cent.
These figures were backed by 51 per cent of employers who said that the reason for offering a programme was to improve staff engagement.
Financial education today is forming part of the whole wellbeing strategy. It’s likely to lead to higher levels of staff engagement and productivity. And, what companies do need to remember is that such a programme can be undertaken in a cost effective way.