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- Different generations in the workplace have different financial pressures and varying levels of financial knowledge.
- It is important to offer financial education to employees of all ages in order to increase their financial awareness.
- Targeted pre-retirement planning should start at least 18 months to two years before a person’s retirement date, so they have time to make changes to their pension.
Ask a typical 18-year-old what they plan to do with their pay packet this month, and the chances are it is earmarked for social activities, rent, perhaps paying off debt, or saving for a holiday.
Mention pensions or retirement planning and the response from many will probably be raucous laughter or a shrug.
However, financial education for employees at all life stages is essential. The key for employers is to make sure it is targeted to the right audience, says Jeanette Makings, director of financial education services at Close Brothers Asset Management. “Talking to an 18- or 20-year-old coming out of college with debt, and saying to them ‘you’ve got to save for your retirement’ is a very different conversation to talking to someone who is five months away from their retirement date,” she says.
For the younger generation of employees, considering the income they will need in retirement can be low on their list of financial priorities. “They are focused on establishing their career, maybe paying off debt, or they might not have been in a work environment,” says Makings. “They don’t know how to budget, or if they’ve enough money to save.”
In the early stages of an employee’s career, an employer’s focus should be on taking them through the basics, making them understand the value of saving, even if only a little, and understanding the different types of debt and how to manage this. Makings adds: “Take them through the basics of budgeting, so they become more financially aware at an earlier age and have a better understanding of their financial planning, so they can make good short-, medium- and long-term decisions.”
Auto-enrolment has reinforced the need for robust financial education in the workplace because many staff will find themselves enrolled into a workplace pension for the first time. Angus Jones, chief executive of Clarity, says: “Employers cannot start too early. Auto enrolment reminds us that retirement planning begins the day staff walk in the door.”
Engaging younger staff
When engaging younger staff in pension talks, it is important to show them how their current savings can impact their future income. Charles Cotton, performance and reward adviser at the Chartered Institute of Personnel and Development (CIPD), says: “It is becoming more challenging for people saving for a pension for the first time. Employers should explain to people in a holistic way that they need to think about paying off debts and start saving for the future. As time passes, these people will start to see how other age groups are struggling because they have not made sufficient savings or investments.”
Meanwhile, pre-retirement education will differ for employees aged between 40 and 50, says Makings. “Somebody who is 15 years away from retirement decisions is usually in a very different demographic,” she explains.
“They have probably accumulated some capital, may have property or a mortgage, may have children they want to provide for or elderly relatives whose estate they are helping to manage. We would help them look at decisions they need to make now to put themselves in a good position in 15 years’ time.”
As with younger staff , it is vital to target education and information in a way that will engage this generation. Alan Higham, chairman of Annuity Direct, says employers will get better engagement if they focus on a key topic, for example what does the employee need to save for, or should they be saving more? “Ask a key question,” he says. “People who might be able to afford to save more might think about whether they should or shouldn’t. People who can’t afford to save more might look at it as rather depressing, so they won’t engage with it.”
Financial education for people in their 40s should be focused on helping them save money and spend more wisely, says Higham.
“There may be specific benefits that are worth communicating, for example an individual savings account (Isa) with lower charges than on the high street.”
Planning for retirement
The ideal time for employees to focus on planning for their retirement is in the lead-up to making a retirement-related decision, bearing in mind that the legal age at which an employee can access their workplace pension is 55.
“Research shows that the typical pension scheme saver first seriously engages with retirement planning about eight years before they actually retire,” says Higham. “So that would point to starting off in the age span 50 to 55. Some people might wish to access their savings at that age, so building awareness of it is a good point.”
The removal of the default retirement age in 2011 means employers may be unaware of the date each employee wants to retire. This enhances the need to begin retirement conversations with staff as early as possible.
Most providers recommend offering retirement information at least 18 months to two years before an employee’s planned retirement. Courses should cover transactions, such as buying an annuity or looking at drawdown, but these can be time-sensitive.
Final salary schemes
Clarity’s Jones says: “If an employer offers final salary [pension] schemes, the course provider must remember that employees may, as a result of the course, think about whether they want their pension to remain in the existing format, because they might learn that it is better to defer taking their pension. It may not be possible to do that in a defined benefit scheme, so they may have to transfer out.”
However, some schemes require 12 months’ notice, which would cause problems if a course is run nine months before retirement and an employee wants to transfer out.
This group of staff is likely to be focused on planning a date when they will make pension and retirement decisions, and the education an employer provides should feed into this. Makings says: “As an absolute minimum, the employee should be looking at making good pension decisions: understanding their pension entitlement, how and when they can access it, and the implications of decisions they make.”
So, education about retirement choices must be targeted to each generation of staff , but in all cases employers should stress that this is a very real concern that should be addressed now.
Case study: Financial workshops educate University of Lincoln employees
The University of Lincoln provides lunch-and-learn financial education workshops to help staff broaden their financial knowledge and understand the importance of saving for retirement.
The workshops are targeted at three age groups, for employees in their early, mid and late careers. All have the same themes, such as managing finances, setting career and financial goals, and understanding financial terminology.
For the early career group, loosely aimed at those up to the age of 35, information is focused on topics such as student debt, credit scores or getting a mortgage, while also helping employees to understand the importance of belonging to a pension scheme as early in their career as possible.
Natasha Halsall, pensions and benefits adviser, says the workshops also highlight the benefits the university already provides, such as using a salary sacrifice arrangement to invest into an individual savings account (Isa) or additional voluntary contributions (AVCs), and to show the total value of the benefits over a year.
The mid-career group covers the 35-to-55 age bracket and looks at savings and tax in more depth. For those aged 55 and above, the university offers detailed sessions on planning for retirement, which employees’ partners can also attend.
Halsall says: “This is around helping people understand when they can retire because, with the removal of the default retirement age, some people are less clear about when they will finish, or how they can afford to retire.”
