Staff need financial education to make the right decisions about their future

This article is brought to you by our sponsor JPMorgan INVEST.

UK employers are failing to explain to workers the extent of their retirement options, but adequate guidance can be given through financial education, says David Cassidy, chief executive officer, JPMorgan INVEST

UK companies are still failing to offer their employees adequate and correct pensions guidance.

A worrying third of UK employers fail to explain the full selection of retirement options to their employees, according to the results of our Retirement options survey of the top FTSE 350 companies, conducted in December 2007. One in five (21%) employers are continuing to focus solely on annuities, a route which seriously limits the choices available to their employees at retirement.

Furthermore, the research also highlighted that companies rely heavily on passive information sources, with a third informing their staff through brochures, their own intranets and letters. A mere 4% of companies offer an education programme, which actively explains retirement options to employees.

A recent poll by the National Association of Pension Funds (NAPF) also shows that 87% of defined contribution (DC) experts believe that employees look to their employer to help them understand how much to save in terms of pensions and which funds to invest in.

This naturally puts pressure on employers to firstly provide pension information and education in a way that employees will easily understand but also to ensure this is not interpreted as advice.

The message is clear from our research and the NAPF report; UK employers need to evaluate the type of pensions information they are currently providing and whether it helps employees make the right decisions about their financial future.

We already provide full education programmes for some of the largest and most prestigious companies within the UK. These focus on providing education to employees throughout their life stages; from seminars for new entrants that discuss debt and tax issues through to workshops for those nearing retirement, that explain some of the most important options they may face when considering their future. Event-driven education is also important in helping employees maximise new opportunities for linking share schemes to pensions or to cope with major change, such as financial issues when faced with redundancy.

Employees also need to understand their income options at the point of retirement otherwise they could spend the rest of their lives regretting ill-informed choices. Many people will spend 25 years or more in retirement so any option taken at this point probably has a bigger impact on their financial well-being than any other financial decision they will have made in their lifetime.

Many employees save diligently into their pensions throughout their lives yet if employers don’t ensure retirement income options are understood, these pension savings will not be converted to the most appropriate retirement income.

Employees now have a wealth of choices and if utilised correctly, they can significantly boost pension income. Yet, all this choice also means confusion. A well-implemented financial education programme has to be the best solution.

Education is vital and is the best way to ensure staff make informed choices. We believe the safest and most cost-efficient way to achieve this is for employers to bring in a specialist. JPMorgan INVEST was created to fill the need for financial education through the workplace to enable individuals to understand their current benefits, such as pensions.

David Cassidy
Chief Executive officer, JPMorgan INVEST

The views and opinions in this article are those of our sponsor, JPMorgan INVEST, and do not necessarily reflect those of