Almost half of employers worry that older employees will have insufficient pension savings to be able to retire, prompting a call for them to review what they are aiming to get from their defined contribution (DC) scheme.
Research by Buck shows that more than 44 per cent of employers are concerned about the long-term impact on the business if employees cannot afford to stop working. Despite this, most pensions schemes do not have sufficient contributions to deliver good retirement outcomes for staff, meaning there is a disconnect between what employers want from their DC pension schemes and what is actually likely to happen.
Buck says this highlights the need for employers to review what they expect their DC scheme to achieve for their business and their employees, specifically as it relates to talent management strategies. Without further support, businesses are likely to face a disengaged workforce as staff remain reluctantly employed past retirement age, says Buck.
Fidelity’s retirement saving guidelines research found that employees need to save an average of 13 per cent of their annual household income between the ages of 25 and 68 to maintain a similar standard of living in retirement, average DC contributions are simply not enough to provide this level of savings for employees.
The study also showed that 25 per cent of employers are concerned about the reputational risk that could arise should employees fail to have an adequate income in retirement. The risks associated with an ageing workforce have become greater following the removal of default retirement in 2011. Buck says that while there are many positives to having an age-diverse workforce, businesses risk limiting company and employee growth when employees remain part of the business because they have to rather than because they want to.
The research also found that 38 per cent of employers are becoming increasingly interested in supplementary saving vehiclessuch as Isas to help employees with wider savings goals alongside retirement planning. Buck says this suggests that companies are moving towards a more holistic approach in supporting their employees’ financial wellbeing, although it is too early to determine whether this has a beneficial knock on effect on retirement planning
The survey asked 50 employers a series of questions on a wide range of pension-related topics to help businesses understand what employers actually want from their pension. The employers covered different sizes and sectors and have over 500,000 UK employees between them.
Buck head of DC and wealth, UK, Mark Pemberthy says: “DC contribution rates aren’t doing enough to help staff manage their post-work life. Although auto-enrolment has been a broadly positive action, it’s caused most employees to switch off from their savings, thinking that their monthly contributions will be enough to sustain them. However, it’s not enough for a comfortable retirement. That’s not to say that employees need to shoulder the burden themselves. Businesses need to dedicate themselves to providing more education around pensions, investing in their staff’s future and empowering employees to confidently plan for theirretirement. “