Employees approaching life as retirees need to time to maximise their pension contributions and work out options for the future.
There is some debate about when financial education around pre-retirement planning should be provided to staff. Most experts would recommend that it takes place at least two years before retirement, with five to seven years before retirement being ideal. This will give individuals time to maximise their pension contributions, work out what their options are and decide how they want to spend the last few years of their working lives.
Ian Cooper, managing director of Oakwell Retirement Planning, says: “Ideally, pre-retirement financial planning should begin at mid-life stage, between the ages of 35 and 40 years.” The argument is that the earlier pre-retirement planning begins, the more able people are to set themselves goals, which they can keep track of over the following five or 10 years.
Stuart Royston, chief executive of educational charity Life Academy, argues that pre-retirement planning should begin when the employee arrives at an organisation and is given the opportunity to join the pension scheme. “At that point the employee needs to have some understanding or awareness that [the pension] is likely to be defined contribution and what that means,” says Royston.
Like other consultants, he acknowledges that many employees are turned off by pensions. “Don’t talk about retirement. Put it in the context of maintaining quality and standard of living. People don’t want to hear about pensions,” he says.
Financial planning and money management is an important and obvious topic. This includes how to get money out of the pension scheme and what to do with the tax-free cash. “It’s probably the biggest cheque they’ve ever had in their lives,” says Royston. Taxation, wills and trusts can all be included depending on the audience. As Royston points out, there is no point talking to people about how to mitigate inheritance tax if they have no money. Other issues to be considered include investing for income, any entitlements to state benefits, whether to defer the state pension, means testing, downsizing, say from a house to a bungalow, and making the home as maintenance free as possible.
While monetary matters are clearly important for pre-retirees, pre-retirement planning issues spread beyond mere pounds and pence. One thing that needs to be covered is the transition period from work to retirement. “Most people fall off the cliff edge of work into retirement. When you’re working, you have status, self esteem and a full diary. Once you stop work, you’re a nobody,” says Royston.
Also, changes to pensions and age discrimination legislation mean that the cliff edge is no longer inevitable. For example, employees may be able to continue to work part time or on a consultancy basis while drawing part of their pension. Some employers will be happy to hold on to their highly-creative people and allow part-time work.
Health and wellbeing is another area to be covered in pre-retirement financial education. People should be made aware of the fact that on retirement, many of the relationships and networks formed in the workplace will go. And relationships between husbands and wives can change too, with couples seeing a lot more of each other.
Most pre-retirement education courses are paid for by employers. Providers usually recommend that the employee is accompanied by his or her spouse, but not all employers are amenable to the idea of paying for the spouse to attend as well. However, providers argue that spouses can bring a different perspective and will probably pick up on areas that their partner overlooks, or chooses to ignore.
Finally, there is the simple issue of how to spend the free time that the retiree will acquire. They need to establish something that will give them a sense of fulfilment and satisfaction.