Our rapidly changing financial world creates the need for better financial education and support.
With the implementation of auto-enrolment upon us, is the responsibility for providing a pension shifting from the government to the individual and the private sector?
From next April, savers will be able to use their pension fund as they see fit, from the age of 55. While we are happy to spend time finding cheaper car insurance or the best deal on our utility bills, do we have the confidence and ability to search for, and understand, the best solutions for our retirement?
The proposed structure from 6 April 2015 is arguably one of the biggest-ever changes to pensions in the UK, with every individual over the age of 55 able to draw on whatever funds they want from their pension pot. Ways to do this include: income for life, such as a lifetime annuity; funds into drawdown, known as flexi-access drawdown; a single or series of lump sums from uncrystallised funds, known as uncrystallised funds pension lump sums; or a combination of these.
The significance of the changes cannot be underestimated and generates the need for re-education to ensure that the appropriate outcomes for employees are achieved.
With schools reopening after the summer holidays, pupils will now be taught saving, budgeting and public spending as part of the national curriculum.
With money worries being a major cause of stress, leading to employee absence, it seems sensible for employers to offer financial education to their workforce.
What to consider when implementing financial education
So what next for an employer that is interested in implementing a financial education programme? First, identify what employees want and need. Promoting employee benefits is a good step and should not be ignored, but there may be other, more personal, areas that employees would value ahead of these.
Different generations will have different financial drivers. Younger employees may prefer help with student loans or early financial planning, such as protecting their young family, whereas older staff may need to know more about their journey after retirement.
Financial education is a significant part of the HR service. Employers of all sizes can use different approaches, such as employee surgeries and individual counselling. Retirement workshops can cover the technical aspects of pensions, and experts can help with the psychological impact of retirement.
Needs of executives and high earners
The needs of the management team must also not be overlooked. High earners and executives, more than ever, need financial education and counselling to ensure they make the best use of the options available to them.
As the pension and tax options for these individuals become more restrictive, there is a need to consider what other tax shelters are available to them. This requires a much broader view of the individual’s overall tax and financial affairs to ensure the right decisions can be made and a personal plan designed and implemented.
For high-earners, it is important to balance tax efficiency with flexibility to ensure that while tax is minimised, this does not compromise investment decisions and strategy.
One thing we can be sure of is that the next 10, 20 or 30 years will continue to bring even more radical and fast-moving change.
The challenge is for employers to ensure that their benefits packages, executive reward programmes and their employees’ financial awareness are kept up to date and remain relevant in this ever more complex world.
James Bolton is employee benefits director (South) at Mattioli Woods
