Financial Wellbeing – Income in Retirement

‘In this world nothing can be said to be certain, except death and taxes’ – The Works of Benjamin Franklin 1817

We are not able to predict the day on which we will die, but from an employee’s point of view, it is possible to predict the level of income available in retirement and how long it will last – if they understand their options and the applicable tax implications.

“Employees need information about the level of tax they might pay as a result of choosing a particular income option in retirement.” Sue Curley, Head of DC

The majority of pension scheme members are confused about their pensions. In general they don’t understand:

  • How the scheme works
  • Different investment options and what they are designed to produce
  • Options available at retirement

Many scheme members are put off by what they see as complex rules, reams of paper with information that they don’t understand, and unnecessary and confusing jargon.

The Government and pensions industry has made great efforts to try and simplify the information for members and employees and to provide access to that information in order to ease this problem.

Members of workplace pension arrangements do need help understanding their pension arrangements and options, but how can employers achieve this?

There are many different ways of communicating with scheme members and employees, but before undertaking a campaign of financial education, it is important to plan, and consider the following as a minimum:

  • What message do you want to get across?
  • Who is your target audience?
  • How will you measure success?

The employee’s point of view

From an employee’s viewpoint it is important to be able to access information throughout their career, from joining their first employer to taking income after age 55.

Workplace surveys indicate that employees of different ages/occupations prefer to access information in different ways. This can be by

  • Face to face meeting
  • Printed information
  • Online tools and modellers

If employees can access information and advice throughout their careers they will be able to make informed choices about the level of contributions that they make towards retirement savings, where they invest their savings , and the level of risk with those investments, an ultimately the level of income that they will receive in retirement.

Employees also need information about the level of tax they might pay as a result of choosing a particular income option in retirement, as they won’t appreciate an unexpected tax bill.

Many employees also need assistance in budgeting for retirement. It is possible to add a budgeting tool to the pension arrangements website, bringing together state pension entitlement and other pension/savings sources. Employees can then model a number of scenarios which will show how much income they are likely to receive against their outgoings, how long their selected income is likely to last, and whether any tax is payable on their selected option from the pension arrangement.

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