- Financial wellbeing
- 4 minute read
It may seem counter-productive, but by arming employees with the tools to retire earlier, you could actually persuade them to stay on for longer. This means that employers continue to benefit from the skills and experience of older employees, while the employee feels valued and supported.
Lynne Foulds, a financial planner at Close Brothers, says that when it comes to retirement, the more information and resources you can give to staff, the better. “Staff really value that information and having more flexibility when it comes to retiring, perhaps on a part-time basis so they can wind down slowly,” she notes.
Many people have delayed retiring since the start of the Covid-19 pandemic due to financial concerns. In a study by Close Brothers, 41% of UK employees said they had experienced heightened anxiety about their finances, compared with how they felt before the pandemic. The ‘Changing trends of financial wellbeing’ research, which was carried out in May 2020, also showed that women felt more anxious about their finances than men. While 34% of male workers noted an increase in anxiety, almost half (44%) of women said they were feeling worried.
“Many of our clients have put off retirement since the start of the pandemic, but they have also realised they can work more flexibly, more remotely and in a way that fits in better with their lifestyle,” Foulds explains.
The recent cost of living crisis, with 87% of people reporting a rise in day-to-day outgoings in the latest figures from the Office for National Statistics (ONS), has also been a significant contributing factor. The ONS found that 43% of people were struggling to pay their energy bills in March 2022 and over a quarter (17%) had turned to loans or borrowing on credit cards to make ends meet.
“While the rising cost of living is almost certainly a factor in people delaying retirement, and while there will be some people who cannot afford to retire, there have also been some advantages for employers when it comes to retaining staff for longer,” says Foulds.
However, she acknowledges that some people have really enjoyed being at home and having additional time with their family, and this has made them want to retire earlier.
The changing pensions landscape
Whichever route an individual decides to take, providing older workers with the right guidance, be that through webinars, leaflets, workshops or one-to-one consultations, can help them work out how and when they can retire.
Foulds points out that the changing landscape of pensions, from defined benefits (DB) and final salary schemes to defined contributions (DC), has also altered people’s outlook. The Government’s introduction of the Pension Freedoms Act in April 2015 also made a significant difference. Under the revised rules, those aged over 55 no longer need to purchase an annuity to access their pension income. Instead, they can access their pension savings as and when they see fit.
“We no longer have the luxury of a gold-plated pension scheme paying out for life after we retire, so many people are looking to continue working part-time and also relying on other investments,” says Foulds. “People largely take a more blended and balanced approach now.”
Many are favouring a phased retirement, where they continue to work on a part-time basis while drawing income from other sources. This gives them more choice and flexibility to continue working in a way that suits them.
“Before the Pension Freedom rules were changed, people had to buy an annuity by the age of 75. But now, because you are no longer forced to retire, my role has changed to seeing people safely through retirement and beyond,” says Foulds. “That pension pot has to be invested in different schemes and sources, and work in a different way.”
Employers are offering an increasingly broad range of benefits throughout the employee’s working life, and more flexible retirement planning is one that is becoming increasingly popular.
“It’s never too early to start planning for your retirement and younger workers often say, after they have learned a bit more about it, that they wish they’d looked at it sooner,” says Foulds. “There is an increased awareness about retirement now and younger workers want to know about financial benefits, such as top-up contributions and salary sacrifice schemes.”
So what is the best way to plan ahead for your retirement, however you want to do it?
Anecdotal reports suggest that an employee typically needs around 70% of their pre-retirement annual salary to live comfortably after they retire. But Foulds says she often finds people don’t need as much as they think they do, especially if they have already paid off their mortgage.
“The pandemic has showed us that it is really quite possible to save. When it comes to financial planning, I always say try and keep it simple,” she notes. “Workers need to look at short-, medium- and long-term saving plans. Their goals might change as they grow older. You might, for example, go off the idea of that campervan, so don’t lock yourself into a scheme you can’t get out of.”
You also need to look at your other assets and how you can invest them, she says. “Get a forecast of your maximised contributions and bring everything together to work out what your total income and estimated outgoings will be.”
When you leave work, you will also reduce all your work-related outgoings, from the cost of commuting to paying for private healthcare, pension contributions, income tax and so on. And remember that you can benefit from the first chunk of tax-free income under the government’s personal allowance scheme, which currently stands at £12,570.
“Once you drill down and look at your expenditure and income, you can look properly at when you can retire and what you need to live off,” says Foulds. “It’s a question of thinking about what is important to you and what you need to get you through in the coming years.”
And if we have learned anything over the last few years, it’s that we never really know what is around the corner.
To find out how Close Brothers 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