Blog Article

 Workplace Pensions

Why it’s important for employees to regularly review their retirement date

April 19, 2018

Two people talking and looking at a piece of paper

Jamie Jenkins, Head of Pensions Strategy at Standard Life, looks at how you can help your employees understand the importance of doing this.

Auto-enrolment has been a great success so far, with employers helping over nine and a half million employees1 take a step towards building a better future in retirement. Building on that, it’s important to keep employees engaged with their pensions throughout their working lives to help them get the outcome they need for the retirement they want.

Maintaining an up-to-date retirement date plays a vital role in helping employees keep their retirement plans on track. Jamie Jenkins, Head of Pensions Strategy at Standard Life, looks at how you can help your employees understand the importance of doing this.

What our insight tells us
We carried out research in November 2017 which showed that most over 45s aren’t making plans that match their hopes for the future.

  • The vast majority (86%) of those aged 45 and over are already dreaming about life after work. However, only 8% have checked the retirement date on their pension plans to make sure they’re still in line with their plans
  • Over half (56%) don’t have a clear idea when they want to retire, and only 10% have worked out how much income they’ll need when they stop working

The study also showed that older employees are more likely to have checked their retirement date, with 17% of those aged between ages 55 to 64 checking to see if the retirement date on their pensions still fits in with their plans.

“Some employees will have set their retirement date when they were in their 20s or 30s and a great deal will have changed since then, including their State Pension age and perhaps their career plans.”

Jamie Jenkins, Head of Pensions Strategy, Standard Life
Jamie continues, “It may seem like a finger in the air guess when you’re younger, but the date that you set for retirement on a pension plan does matter. It will often dictate how your money is being invested and the communications you receive as you get nearer to that date.”

Four reasons why employees should keep their retirement date up to date

  1. To get the right support at the right time

Employees have more choice than ever. They can access money from defined contribution plans from age 55 (likely to rise in the future); they can take an income from their pensions while still working and paying into them; and they can decide when they stop working.

But employees making these choices may need support to understand the implications, so it’s important both employers and pension providers know what the employees’ plans are. If they don’t, employees may not receive the right information and support, at the right time.

  1. To make sure their investments are in the right place

Some investment options (such as lifestyling investment options and target dated funds) start to move pension savings into lower risk investments as employees get closer to retirement. If their plan doesn’t have the right retirement date, their pension savings could move into these investments at the wrong time. For example if an employee’s pension savings are moved into lower risk investments too early, they could potentially miss out on investment growth. On the other side of the coin, if their savings are moved too late, they could be exposed to unnecessary risk.

  1. To build up a large-enough pot

The size of pension pot an employee can build up will, in part, depend on the date they plan to retire. Get that wrong and their pot may not have the time to accumulate as much as they need, and so they may not have the lifestyle they want in retirement.

  1. To get the annuity income they expect

If an employee plans to buy an annuity at retirement, the amount of income they’ll get will depend on the size of their pension pot and annuity rates at that time. Again, an incorrect retirement date could have implications on the type of lifestyle they can enjoy in retirement.

“Reviewing your retirement date regularly as you get older makes real sense and most modern pension plans enable you to change and update this date whenever you choose. It needn’t be the same as your State Pension age, you might want to work longer, or retire earlier.”

Jamie Jenkins, Head of Pensions Strategy, Standard Life
Jamie goes on to say, “Some employees who plan to slow down or stop work earlier are using money from their workplace pension savings to bridge the gap until they can start claiming State Pension. All they need to do is inform their pension provider of their plans, even if they change again in future.”

How we can help you help your employees
We can help your employees take control of their workplace pension with insight, education and engagement support. In turn, this can give your employees a better chance of keeping their retirement plans on track.

We also have interactive tools to help them. Our Retirement Pathfinder can show them how the choices they make can affect their income at retirement. They can create and analyse different scenarios and the results can help them choose the right retirement date for them.

Here’s where you can find more information, insight and employee engagement support:

Encouraging your employees to engage with their workplace pension

The keys to effective engagement

‘Ready to go’ employee engagement campaign materials

 

1 The Pensions Regulator automatic enrolment declaration of compliance report, to end of March 2018
The views expressed in this blog should not be regarded as financial advice.
It’s important to remember that a pension is a long-term investment and as such its’ value can go down as well as up. It could even be worth less than was paid.

 

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