- Financial wellbeing
- 3 minute read
Pretty much everyone is looking at ways to tighten their belts right now – and some of your employees are likely to be very worried about spiralling costs. Pausing – or even cancelling – pension contributions may be something they’re considering. However, for the majority of people, their pension is likely to be their most valuable and largest savings pot. So reducing the amount they put into it should really be a last resort.
Communicating about financial wellbeing in times like these needs to be handled sensitively. But it’s also imperative that employees understand the importance of continuing to save for retirement if they can. Because while pausing pension payments – or leaving pension schemes altogether – does free up some money in the short term, it nevertheless will mean reducing or giving up ‘free’ employer contributions and tax relief and even a short pause will impact long-term savings.
Staying informed is critical
Alongside initiatives like Pension Awareness Day it’s a good time to reach out and encourage people to review their current pension situation. This will make sure they know what they’re contributing now, what this could mean when they get to retirement – and crucially, the impact adjusting their contributions could have – before they make any changes.
- Use a pension modeller: This will show employees what their current savings plan could look like when they get to retirement
- Locate old pensions: The pensions tracing service can help to identify old pensions that people may have lost track of over the years. And when they do track these down, it’s important to update them with their current contact details immediately
- Consolidate pensions: If an employee has multiple pensions, they may want to bring them together into one pot to make them easier to manage. There are pros and cons to consolidating pensions – so it’s worth making sure they consider all the risks first and crucially that they don’t forego any valuable benefits that may exist
- Check the nominated beneficiary is up to date: This is the person your employee’s pension fund will go to when they die. If it’s been a while since they last reviewed their pension, they may want to update this
What happens if employees want to reduce or stop their pension contributions?
The most important things are that employees know what they are giving up (including tax relief, employer contributions and the loss of compounding), what they will get in their pocket as a result and the impact of this gap or reduction on their long-term savings plan.
Of course, when money is tight, it may feel as though pressing pause on pension contributions is the right thing to do.
If employees are considering reducing their pension contributions – or taking a contribution holiday – encourage them to use a pension modeller before they make any decisions. This will help them understand what this will add to their cashflow, what they could be losing out on – and give them an idea of the savings gap they’ll need to try to close when they start paying in again.
If an employee decides to reduce or stop their pension contributions for a short time, it’s a good idea to also encourage them to make a plan for how they’ll get back on track when their money pressures ease.
Signposting useful resources
Times are tough right now – and even if your employees aren’t struggling, they’re still likely to be concerned about their finances. Make sure they know they can get support at work – and where they can find it. For example, if they have questions about their pension, let them know that they can get in touch with your workplace pension provider. If you have a debt counselling service within your Employee Assistance Plan, highlight it, encourage them to use it and underline its confidentiality.
And if you have a workplace financial education programme, remind employees that they can access information about budgeting, managing the cost of living rises and pension savings plans at any time.
To find out how we can help your company improve the financial wellbeing of your employees, go to our financial education services page or call us on 0800 028 0208