Should employers facilitate a drawdown route for employees?
The pension reforms, introduced by the government in April 2015, have brought about a whole new way of thinking about retirement that impacts almost every worker and every company in the UK. However, our recent research shows that UK employers are failing to enable staff to use the new drawdown flexibilities:
- Only 43% of employers plan to offer a drawdown option as part of their pension plan despite the fact that 87% of employers believe that their staff will want to access some or all of their pension after the age of 55.
- Only 6% of employers surveyed were offering drawdown in a trust based arrangement. The majority who are offering drawdown are using a provider or broker to facilitate access.
- The majority (69%) believe the management and implementation of drawdown is too difficult but other barriers to adoption include governance issues (59%), no desire from the employer (53%) and cost (45%).
- 51% of trust-based schemes have not rolled out targeted communications to members aged over 55 since the new pension rules came into effect.
It was inevitable that there would be a trade-off between bringing the reforms in quickly and having everything working smoothly from the outset. It is therefore understandable that employers are playing catch up. Having said that, those which take the steps towards more flexible pension schemes early will reap the benefits in the long run. It is a significant undertaking to start offering drawdown options for your employees in your existing scheme, but, partnering with a specialist provider allows businesses to free themselves of the onerous and complicated governance that surrounds in-scheme drawdown. LifeSight, for example, can dovetail with an existing scheme’s retirement processes to facilitate an easy route into drawdown. Its trust-based structure, flexible withdrawal options and straight-forward investment choices mean trustees can rest assured their members are in safe hands. At the same time, employers can reap the benefits of happier staff and a good employer reputation.
Why offer drawdown?
- Flexibility – the workforce is diversifying rapidly and employers need to be able to accommodate the differing needs and levels of interest of various demographics.
- Freedom – by offering drawdown options, employers are increasing the freedom of choice for their employees. If managed correctly, the reforms can facilitate a better standard of living during retirement because employees can take an income, or choose not to, and can make one-off withdrawals when it suits them.
- Employers can better manage the demographics of their workforce and reduce the risk of having an ageing workforce. A system that encourages everyone to think about a pension plan that could work for them, long before the time comes, makes the decisions to retire much easier. This means that the challenge of persuading some employees that the time is right to leave the workforce will be reduced.