Jonathan Watts-Lay, director at WEALTH at work, discusses the challenges for employers in 2017.
Recent data from the ABI shows that in Q1 of this year, 695 people cashed out pension pots worth over £100,000 in full: meaning that they would likely end up paying huge sums in tax. The question is, did they realise the tax implication when taking the cash, or was it a nasty surprise? While we don’t know about their personal situations, it does suggest there are some people taking actions that are unnecessarily costly to them.
Also, as with the issues around pension cold calling and scamming, it is a common misconception that it’s fundamentally an employee/member consideration: but what should and could employers and trustees be doing?
At present it is only the most innovative employers and trustees who are realising the benefits of supporting employees with the issues they face at-retirement. But as we move into 2017, employers need to look at undertaking due diligence on providers, and finding those companies who can offer a full service for employees at-retirement. This includes; financial education – helping employees to understand the pros and cons of each retirement income option; regulated advice to provide individual support; and also help with the implementation of their chosen option in a tax efficient way – whether employees decide to buy an annuity, go into drawdown or simply make cash withdrawals.
Individuals will then have the peace of mind of knowing that they are part of a secure and trusted service, which also gives them flexible options not just at the point of retirement but throughout retirement as personal circumstances change. The big win in this is that employers/trustees use their buying power to put in place an appropriate service, while ensuring the member can benefit from lower costs throughout retirement. In other words, it does not need to have a direct cost impact on the employer/trustee but the member can benefit from lower costs and a better service in-retirement.
Some employers are struggling with the question of whether retirement is their issue or not, or whether it is just their responsibility to run the pension scheme for employees. If an employee has saved into a pension for forty years, and are at the point where they want to turn their savings into an income, why wouldn’t you want to help them? After all, the last thing an employer really wants is for one of their employees to be scammed or to make a bad decision and be unable to afford to retire.
