More and more UK employers are taking on board the need to support employees as they approach retirement, often as part of a broader financial wellbeing programme. They understand the value of a resilient workforce and recognise their duty to support retirement planning.

But these efforts may not be enough to stave off the oncoming pension crisis and what we now call ‘pension inadequacy’.

Up to now, most retirees have been able to rely on at least some income from a defined benefit (sometimes known as a final salary) pension scheme. Maybe that has masked the problem – we look at today’s older people and assume that the lives of tomorrow’s older people will be much the same.

But the situation is changing as the next generation approaches retirement age, with only their savings from defined contribution (DC) pots and the distant prospect of a State Pension.

Recent research by think tank Phoenix Insights paints a worrying picture of Britain’s looming retirement crisis. By 2040, almost three million (2.67m) people of retirement age won’t have enough pension to cover their basic needs, according to its projections.

What about auto-enrolment?

Auto-enrolment has been a real success in making more people save for their retirement. Since 2012, more than 10 million people have been automatically enrolled into (mainly DC) pension schemes, benefiting from employer contributions and tax relief.

Auto-enrolment is now a standard part of HR and payroll processes, and opt-out levels have been low. Some people may never have saved any money for retirement without auto-enrolment.

So, what’s the problem?

All the signs are that awareness of the size of DC savings required for even a moderate retirement lifestyle is poor. Today’s DC savings pots are likely to fall well short of the amount required.

Based on current annuity rates, a 65-year-old retiree will need a DC pot of approximately £600,000. By contrast, the average UK pension pot holds £20,077, according to PensionBee. Even among 66-year-olds, the average pot is still only £195,058.

While it’s good news that so many more employees are saving for retirement, the legal minimum DC contribution is a combined 8%. Realistically, contributing this amount into a pension each month over a working life won’t be enough to achieve an adequate retirement income.

What else can employers do?

Fine-tuning your pension scheme could make a real difference

Building on the success of auto-enrolment, there’s much more that employers can do to improve the retirement outcomes of their people.

Many employers don’t realise how important it is to review whether their pension arrangements deliver value for money. Employees are often unaware of all the pension benefits their employer provides. And most employers lack the expertise to check whether their pension scheme complies with constant regulatory changes.

In practical terms, employers should start by considering:

● Salary exchange – This can deliver NI savings for both employers and employees, and is especially important in light of employer NI increases announced in the autumn Budget

● Scheme investment review – It’s easy to overlook this. But without regular checks, they may not be performing well

● Compliance checks – Regulatory fines can be hefty, but it takes a specialist eye to spot gaps in pension compliance.

Financial wellbeing activities can improve people’s lives

Once they’ve sorted out the basics, employers can move on to the next challenge. Many individuals have only the haziest knowledge of their pension arrangements, and how and when they will access their benefits.

This is where financial wellbeing programmes come in. They give people the knowledge and support they need to make effective retirement plans, with activities such as one-to-one sessions, workshops, webinars and online tools.

How First Actuarial can help you

With our FirstEngage service, First Actuarial works with employers to help them get more value for money from their pensions, for example by introducing salary exchange.

Our pension specialists can check your pension arrangements thoroughly to make sure they’re compliant. And our investment consultants can review your pension scheme portfolio and make recommendations to improve performance.

Our free DC pension scheme health check is a great starting point.

With the basics in place, our financial wellbeing consultants can work with you to educate your employees on the basics of pensions and support them through retirement planning. We can also raise awareness of the pension benefits that you provide. We offer a Financial MOT for employees to start what is often a life-changing process.

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