Ageing workers and inadequate retirement savings causes increasing anxiety for employers
Research by professional services firm, Towers Watson, has found that nearly half of UK employers (49%) are concerned about older workers deferring retirement due to inadequate retirement savings.
The survey of employers found that nearly two-thirds (62%) of employers think retirement adequacy has become a more important issue in the last few years and three-quarters (74%) think it will become a more important issue in the future.
Phil Percival, head of Towers Watson’s FiT Age programme, said:
“More people in the UK are faced with having to delay their retirement, with potential consequences for companies that don’t encourage their employees to take control of their financial futures. Employer concerns are not without foundation, employees that need to retire later report higher stress levels and can be less engaged. Gaps in financial well-being and retirement readiness create the risk for an employer of a distracted workforce with higher costs. Affected employees may also contribute to blocked career paths, increasing the risk of losing critical talent.”
The underlying reason for delayed retirement dates is believed to be lack of financial awareness when it comes to retirement. Only 1-in-10 employers think their workers know how much to save for retirement and just 4-in-10 believe their employees know what to expect from their company pension scheme. As a result, nearly a third of employers expected to place more emphasis on workers’ ability to retire in the coming years.
Phil Percival said, “If companies want to have a good idea of when older workers will be able to retire, they need to better understand the financial circumstances of their workforce. The reasons for the shortfall in savings typically include an unwillingness to think about retirement because it’s seen as too far in the future, negative perceptions about affordability, and the complexity of our pensions system. These factors can all led to procrastination as people put off making important decisions about their future. In order to help employees reach their retirement goals, employers must take responsibility for informing and educating workers early on about how to achieve the retirement income they want."
However, the research shows that employers are sceptical about how effective the latest government pension reforms will be in helping workers to retire. Less than a third (30%) of employers think that defined contribution (DC) pension plans will now be better able to deliver an adequate standard of living in retirement. While less than half (42%) think that the new DC pensions freedoms will be more effective at managing employees into retirement and only 3-in-10 (28%) think that younger employees will contribute more to their DC plans as a result of the greater freedoms available.
“Employers are understandably concerned that despite the new pension freedoms giving employees more choice over their retirement, the same problems remain when it comes to encouraging people to save enough for their retirement. Education, education, education is the key to overcoming these barriers and helping employees clearly see the financial goals they need to achieve to meet their expectations for retirement,” said Percival.