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Rethinking Retirement Ambitions
With the recent news that women affected by the state pension age increases have lost their High Court battle against the government, many people have been left seriously out of pocket when it comes to saving for retirement.
The Back to 60 Campaign group mounted the landmark legal fight on behalf of almost four million women born in the 1950s, whose retirement plans have been affected by the increase of the state pension age from 60 to 65.
Campaigners claimed that the women were not given enough time to financially adjust to the additional years without the state pension provision and asked for compensation to account for the money they would have been entitled to, had they been able to retire earlier as planned.
As the battle was lost, the issue remains – waiting an additional six years to receive the state pension has left many in a precarious financial position. It also highlights the changing face of the pension landscape and the resulting need for those at all stages of the financial life cycle to reassess their savings and investments plans with a sharper focus.
The Changing Face of Pensions
Back in the day, when you hit the age of retirement you could expect a small work celebration, a carriage clock and a state pension that allowed you to live comfortably. Sadly, times have changed. People are living longer, and our ageing population have seen the state pension age gradually rising, with plans to increase it to 66 by 2020 and 68 by 2039.
For those who are eligible, the current full flat-rate state pension is just £168.60 a week. This means that more ambitious retirement plans may be out of reach for many of us. In fact, research by the Joseph Rowntree Foundation suggests that 1.9 million pensioners in the UK are living in poverty.
Once upon a time, working hard and paying your National Insurance contributions was all you needed to worry about in terms of planning for your retirement. But the rise of the state pension age shows that people need to take matters into their own hands. We need to future proof our wealth and assets as far as possible, seek professional advice and assess our retirement options more carefully.
Rising state pension ages and insufficient income from said pensions have meant that people are also increasingly looking to their employers to help plan for their retirement. With retirements potentially lasting 30 years or more, this is a significant proportion of most lifetimes and our financial plans need to adopt this longer-term perspective.
The introduction of automatic enrolment by the government under the Pensions Act 2008 went some way to acknowledging the issue by putting the onus on employers to both encourage employees to save, and to contribute to the pension pot themselves.
On retirement, a workplace pension offers an additional amount on top of whatever state pension a person is entitled to.
Employees who work in the UK, are between 22 and state pension age, and earn more than £10,000 a year are automatically enrolled into a company’s pension scheme.
They will then pay a set percentage of their earnings into the pension, with the benefit being that their employer and the government will also pay a set percentage into the pot. The current minimum is 8% of an employee’s qualifying earnings, at least 3% of which must be paid by the employer.
Almost all UK businesses now have a workplace pension in place. But employers should regularly check that their workplace pension remains fit for purpose, reviewing pension scheme charges, investment performance and employee support capability.
They must also have processes in place to satisfy the re-enrolment requirements every three years.
Our specialist team offer advice and support on how employers can roll out the most effective pension scheme for their workplace, helping every employee to stay on track with their retirement goals. In addition, our associated company, Vintage Wealth Management, can offer tailored advice for individuals about all aspects of personal pensions and retirement planning outside of the workplace.
Benefits for the future
Workplace pensions are not the only way for businesses to help employees plan for the future. A strong employee benefits package can add further value and provide important support for years to come.
More and more businesses now offer extra opportunities for employees to save or invest money through their workplace, above and beyond the company pension scheme. These can include such options as workplace ISAs and share schemes.
Health-related benefits can also provide peace of mind and financial backup for employees as they get older. Increasingly popular components of employee benefits packages include income protection, private medical insurance, dental and optical insurance and critical illness cover.
In addition to preparing finances for a potentially longer lifespan, it is also important to make sure loved ones are protected in the case of death. Life insurance, or death in service insurance, pays a tax-free lump sum if an employee dies. This provides support for financial dependents, such as their partner or children.
Best laid plans
With an ageing population in the UK and a changing pensions landscape, it is increasingly important for people to make additional plans for the future and continue to reassess their ambitions with regards to retirement. Employers can make a huge impact on their employees’ options, providing pension plans and benefits packages that protect and invest for the future in ways that may not be possible for individuals to do alone.
Offering strong schemes can attract and retain employees, helping to create a happy, healthy and dedicated workforce. Employers need to use all avenues available to encourage their team in taking firm steps towards planning for retirement to ensure that their futures, and those of their loved ones, are taken care of.