Recent analysis from Pensions UK should serve as a wake-up call for employers and policymakers alike. The finding that more than three-quarters of UK workers are not on track to achieve a moderate standard of living in retirement should raise alarm bells for businesses.
Often issues around retirement adequacy are viewed solely through the lens of pension contributions. In reality, the growing retirement savings gap is not only a workforce challenge, but a productivity and commercial challenge
for employers.
Retirement has changed dramatically over recent decades, with most employees now responsible for building their own retirement savings through DC pensions. This involves complex decisions about contributions, investments, tax rules and retirement income planning. Yet despite this shift many remain disengaged from retirement planning until it is almost too late.
For employees more immediate financial pressures take priority, whether its mortgages, rent, childcare costs or rising household bills. As a result, many arrive in their fifties and sixties without a clear understanding of what retirement they can realistically afford.
This presents a challenge for individuals and employers when it comes to workforce planning. Those who cannot afford to retire often remain in work longer. There is nothing wrong with employees choosing to work later in life; many want to remain active and engaged. But issues arise when people feel trapped in work because their finances leave them with no alternative.
For businesses an ageing workforce can lead to higher benefit costs, increased healthcare claims and greater levels of absence. Organisations can also experience challenges around succession planning and career progression. When senior employees delay retirement, younger ones may find advancement opportunities limited and choose to move elsewhere, resulting in increased recruitment costs, loss of talent and reduced organisational agility.
This is why retirement readiness should be viewed as part of a broader financial wellbeing strategy rather than simply a pensions issue.
Employers are often the first place employees turn when they need support, be it healthcare, financial education or workplace benefits. Retirement planning should be viewed through the same lens. The most effective organisations understand financial wellbeing is an ongoing process supporting employees throughout their careers, and this begins
with education.
Many employees simply do not know what retirement will cost, what income they are likely to need or how much they need to save. Discussions often focus on pension pot sizes but the more important questions are around retirement lifestyle, and how to plug potential income gaps. This can help make retirement planning more tangible and meaningful.
Employers can play an important role by providing regular communication, financial education programmes and access to guidance at key life stages. Particular attention should be given to employees over 50, who are often approaching critical financial decisions around retirement timing, pension access and income planning.
Businesses should also regularly review pension arrangements. Many schemes were set up a decade ago during the early years of AE and have received little attention since. Yet legislation, investment markets and retirement behaviours have all evolved significantly over this period.
A pension scheme should not be treated as a statutory box-ticking exercise. Ongoing governance, regular reviews and employee engagement are essential if employers want to ensure arrangements remain fit for purpose.Importantly, this is not simply about doing the right thing for employees, although that matters. There is a compelling commercial rationale too. Employers that help employees achieve better financial outcomes are likely to benefit from a more engaged workforce, better workforce planning, improved retention and lower long-term people costs.
The Pensions UK findings highlight a challenge that cannot be solved through contribution increases alone. If three-quarters of workers are not on track for a moderate retirement, we need to stop thinking about retirement planning as something that starts in our sixties. For employers, the question is not whether retirement readiness matters. It is whether they can afford to ignore it.
