The vast majority of employers have not reviewed their pension offering in light of Pension Freedom; they struggle with how to manage the implications; and do not believe their employees understand the new flexibilities: reveals research from Jelf Employee Benefits.
Pension Freedom, in force since April 2015, allows new permissions related to accessing a pension; yet 91% of employers do not believe their employees understand the new flexibilities. This is not surprising when only 13% of employers have reviewed their pension offering since the introduction of Pension Freedom.
The changes necessitate a fresh look at what investment options employees have available to them and brings into question the suitability of default funds chosen by employers prior to the change. It has never been more important for employers to review their offering and encourage employees to look at how the new freedoms might affect their choices.
Lee Coles, head of retirement services for Jelf Employee Benefits said: “Except for the largest employers, very few have reviewed their pension in light of Pension Freedom, and we suspect this is because they just don’t know where to start. But the new flexibilities have completely shaken up the choices that are now available to employees. Employers have to ask themselves what they are doing to help their workforce take advantage of the opportunities, and what are they doing to help them avoid the very serious pitfalls brought about by pension freedom. It is important that employers find out what the changes mean so they can provide the most appropriate pension offering and support for their staff.”
The reality is that anyone aged 55 and over can access their pension savings now and potentially spend the lot. The implications, particularly around tax and the impact this could have on the ability of an employee being able to afford to retire, are enormous.
In light of Pension Freedom the main areas employers are concerned with include the new permissions, investment options and how to communicate them to staff. Most pension scheme providers will have adapted the choices they’ve made available, but the extent to which employers and their employees understand this is clearly limited. Jelf believes the answer lies in education and taking a wider view of pensions. When financial education at work is career-long – taking into account the different financial priorities at different life-stages – pensions can be introduced as a more natural consideration along with every other financial decision that employees make.
Coles said: “We absolutely understand that companies have had a lot to consider in regard to pensions, and the new freedoms may be seen as one thing too many with which to get to grips. But it is important for companies to review their offering in light of Pensions Freedom. It doesn’t have to be daunting. The help is available, and it is important for employers to seek that help so their employees can make the most of the greater flexibilities now allowed and don’t fall into the traps that have been unintentionally set. The possibility of positive outcomes is greatly diminished if such options are only considered at retirement, so we encourage career-long financial education if employees are to be fully supported.”
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