Attitudes to pension reforms: Why employers need to address employees’ concerns
As the government’s pension reforms start to become a reality for many people, the financial ombudsman and pensions industry are getting increasingly concerned about the unintended consequences of the new freedoms.
The decision by George Osborne to allow people to spend their defined contribution pension funds as they choose, as opposed to being forced to buy an annuity, has provided a range of new options that have previously been unavailable to retirees. However the relatively predictable outcome of the reforms – more money freed up within the market – may well create some serious consequences that need to be addressed.
Our own recent research provides further evidence that many are concerned about the impact of the reforms. British workers worry that there could be an increase in irresponsible spending and fraud as a result. Many pension experts share these concerns.
So what are these implications likely to be?
With people reaching the age of 55 able to draw down part or all of their pensions, suddenly billions of pounds of investable pension funds are going into the open market. This inevitably creates an opportunity for unscrupulous financial advisers and fraudsters to take advantage of potentially vulnerable pensioners.
There have been plenty of stories in the national media about pensioners being targeted with texts and calls by dishonest financial advisers or bogus pension schemes before the new rules came into effect.
The concern that people will lose their life savings by transferring their pension into these schemes is entirely justified. The government and industry must closely monitor this sort of activity to stop any wrongdoing.
In addition, one of the other biggest concerns is that drawing down too much too early could mean that people run out of savings, and this could be at an age when returning to work may not be a practical option – leaving state support potentially as their only income. Employers risk damaging their reputation by failing to provide the necessary support to staff, to ensure they spend their pension responsibly and avoid falling victims of fraud.
As the Government’s pension freedom reforms take effect, the onus will be very much on employers to deliver guidance and support on pensions. Part of this will be to help workers understand the importance of their pension pots, their decision on when to retire, how to manage savings in retirement, obtain good advice and not fall prey to fraudsters and scammers.
Equipped with the right tools, companies will be able to support this concerned workforce, allaying fears and helping people plan for the future. Companies that go the extra mile to support their staff on pensions will find themselves in a stronger position in terms of staff retention, recruitment and reputation. Employees are looking to employers to help. Employers should see it as a unique opportunity to enhance their employer brand, educate employees about their options and provide them with the support they need for a secure and happy retirement.