The thought of retirement is a scary prospect for most employees but financial education that occurs over five years before the event can be of enormous benefit says Laverne Hadaway
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Pre-retirement education is a benefit that is currently offered by relatively few employers, but that may well change.
Jonathan Watts-Lay, a director at financial education specialist JP Morgan Invest, says recent developments are making employers sit up and take more notice of pre-retirement planning. Firstly, the complex changes to pensions legislation in April last year means the options open to retiring employees are now many and varied. This, coupled with the government’s message that people are going to have to work longer and save more or live in poverty, means that awareness of how employees are going to provide for themselves in old age is working its way further up the agenda.
But despite these factors, Stuart Royston, the chief executive of Life Academy, a charity associated with the University of Surrey that runs pre-retirement training courses, says the majority of employers provide no pre-retirement preparation for their employees. In fact, he believes that around 90% of employees move from paid employment to retirement without any access to employer-paid pre-retirement education at all.
Those organisations that do offer access to pre-retirement information will typically enrol the services of an outside provider to come into the company to deliver seminars or hold one-to-one meetings with employees nearing the end of their careers. The other options open to employers are sending employees on an off-site course or delivering the pre-retirement education themselves in-house. Should they take the latter option, employers should be aware that there is a fine line to tread between giving staff advice and information, and unless the company is regulated by the Financial Services Authority to give financial advice it should not do so. Furthermore, financial advice, if not properly executed, could leave the employer open to court action from employees.
A major part of pre-retirement education typically centres on pensions. For many retirees, the tax-free cash element of their fund is probably the largest amount of money they will handle at any one time in their lives. Other topics include relationships and family life, health, state benefits and entitlements, housing, wills and trusts, the rules and regulations on residential care for the elderly and infirm, and even general budgeting.
In Watts-Lay’s opinion, employers often have one of two perspectives on pre-retirement financial education. While some companies care sufficiently about their employees to provide it, others are concerned that employees who discover how little income they will receive when they leave full-time employment will sue the organisation, or at the very least demand to hold onto their jobs. And employers fear because of age discrimination legislation introduced last year, they may be unable to refuse such requests.
When it comes to the companies prepared to offer access to financial education, Mark Rowlands, corporate benefits development director at Axa Sun Life, says there are three categories of employers. There are those that provide basic benefits, but are not interested in doing much more. These tend to make pre-retirement financial education available to senior executives only. Secondly, there are those with a commercial interest in providing such education. These tend to be professional service companies competing for talented staff in highly-skilled sectors such architecture, financial and law firms. The third category are paternalistic employers, which may also have heavy union involvement, and will most likely have come out of a defined benefit scheme but have a culture of providing for employees. This third type of employers typically make any provision open to all employees.
Ian Cooper, managing director of Oakwell Retirement Planning, says that more often than not his company is contacted by individuals who then have to persuade their organisations to send them on one of its courses. He adds that the average age of the HR team may also have an influence on the extent of financial education provided. For example, an organisation Cooper works with has one division with a mature HR team which runs four pre-retirement workshops a year for employees, while another division with a younger HR team, has yet to set one up. "They just don’t see the value of it, especially if they’re quite young," he explains.
One of the problems with pre-retirement financial education is that it has to be offered well in advance of employees giving up work for it to make a difference to their financial wellbeing but many employers fail to realise this fact. "The problem with pre-retirement courses is that by the time people come on them, they are within two years of retirement. Often they’re within six months of retirement," says Royston.
"By the time they come, the financial die is already cast and people can’t change it. All we can do is help them understand what they’ve got and how to make the most of it," he adds.
Cooper says most employers send their staff on pre-retirement courses as an afterthought, but believes that employees should be attending them with as much as five years to go before they leave work.
Watts-Lay from JP Morgan Invest agrees that pre-retirement education should be undertaken as early as possible and adds that, for many people, it can be the eye opener to "the horror that’s around the corner".
He says that while the first generation of baby boomers, born post-war who are going into retirement now, are likely to have final salary schemes, the second set of baby boomers, born in the early sixties, are more likely to have money purchase schemes and may have little idea of what kind of pension they will end up with. He claims that some employees will be shocked at how little money they will have to retire on and argues that they need to be prepared sooner rather than later in order to do something about it.
Consequently, he advocates that people should be doing a pre-retirement financial education course in their forties, while Cooper suggests that there should be some kind of mid-life planning for employees in the 35-to-40 age group. Feedback from course participants also seems to back this up. Tony Wheeler, managing director of course provider Retirement Education Services, says attendees are often pleasantly surprised at how useful the courses are and express the wish that they had done it five years earlier.
"People in their fifties need to understand the options. They can carry on working, while taking part of their pension, save, take some tax-free cash, buy an annuity – the permutations are endless," adds Watts-Lay.
While pre-retirement education courses are valuable to employees, ultimately, it is usually the employer who pays. Charges are between £200 and £300 per person for a two-day course, with lower rates for courses held at a workplace. One provider, for example, quotes £1,720 for 20 people in-house. Spouses’ attendance usually costs from £150 upwards, but according to Royston, only about a third of employers are willing to pay for this.
Ultimately, many employers will want their staff to be prepared for retirement, and not just from the point of view of their finances. "Most people work full-time until they retire. There are issues of status and self-esteem. [Pre-retirement planning] is about how people can usefully use the last years of their working lives to prepare for their retirement," Royston adds.
- The majority of employers fail to provide financial education to employees.
- Using an outsourced provider is likely to cost between £200 and £300 per person for a two-day course. Spouses’ attendance is likely to cost a further £150, but most employers are not willing to pay for this.
- Many employers leave pre-retirement education until it is too late for the employee to do anything about the financial situation they will find themselves in when giving up full-time employment.
- Providing mid-life planning courses when the employee is in the 35-to-40 age group would be ideal.
- At the very latest, individuals should be attending pre-retirement courses when they have five years to go until retirement
AXA’s public policy research report, The UK Workplace: engaging employees and employers in benefits, pensions, financial capability and health, was conducted in April 2006 among 300 employers and 1,357 employees.
Employers were asked whether they felt it was appropriate for them to give their employees guidance on planning their own personal finances. Of those questioned, 74% said it was not, leaving 26% who thought it was.
However, 31% of employers said that they felt some responsibility for their employees’ level of knowledge on personal finance.
Medium and large companies (at 40% and 37% respectively) were significantly more likely to feel responsible for their employees’ knowledge about personal finance than the smaller companies asked.
When employees were questioned, just over a third (34%) said that it was important that their employer provides information and guidance.
The National Foundation for Educational Research has around 250 employees. The registered charity, based in three different locations in the UK, carries out research for bodies such as the Qualifications and Curriculum Authority and the Department for Education and Skills.
It has been sending employees on pre-retirement financial education courses for at least 15 years. Stephanie Cornell, head of personnel at the charity, says: "We’re an ageing workforce with a high percentage in the 45-upwards age bracket.
Employees are offered the opportunity to attend the courses from the age of 55 years onwards. "There’s no point doing it a year before they retire. [This] means there is at least a ten-year window in which they have the opportunity to plan."
Cornell says that she has attended a course herself with her husband. "It opened up a lot of doors in our thinking and there was a lot of useful information."
The feedback from colleagues has been just as positive. "We’ve never had a negative comment back. [But] the older people are when they do the course, the more likely they are to come back and say, ‘I wish I’d done it earlier,’" adds Cornell.