As recently reported by the BBC in a recent article (1), too many employees are facing a significant drop in income when they retire — and the gap between expectation and reality is widening. The BBC article can be found here:
Recent research highlights a concerning trend in that while the majority of workers are on track to achieve only a minimum standard of living in retirement, far fewer are saving enough to achieve the moderate or comfortable lifestyles most people actually expect. For employers, this presents both a risk and an opportunity.
The latest retirement living standards (2) indicate that:
A minimum lifestyle costs around:
£13,900 a year (single person)
£22,500 (couple)
A moderate lifestyle requires:
£32,700 (single)
£45,400 (couple)
A comfortable lifestyle rises to:
£45,400 (single)
£62,700 (couple)
These figures indicate that whilst around 82% of workers are on track to reach the minimum level, only 23% are expected to achieve a moderate standard, and just 9% are on course for a comfortable retirement. This creates what has been described as a “cliff-edge drop” in income at retirement where employees move from working income to significantly lower pension income almost overnight.
This isn’t just an individual issue as it directly impacts employers in several ways.
Employees who cannot afford to retire may stay in the workforce longer than planned, possibly affecting such things as succession planning, workforce costs linked to employee benefits, productivity and role progression.
Concerns about retirement adequacy can also potentially lead to Increased financial anxiety, reduced engagement and focus and possibly higher absenteeism.
The data also highlights ongoing disparities in that women typically have around half the pension savings of men with the gap beginning as early as age 28 and without intervention, these gaps can widen creating longer-term wellbeing and diversity challenges for employers.
The cost of achieving even a moderate retirement income has increased year-on-year, driven by such things as higher food costs, rising social and leisure expenses and broader inflationary pressures which means that employees who are saving consistently may still fall short of their expected lifestyle.
Many employees don’t understand how much they need to save, rely too heavily on default contribution levels, underestimate their future income needs and also fail to engage with annual pension statements. For employers, improving pension outcomes is no longer just about providing access, it’s about driving engagement and understanding.
As an employer, are you happy that you, with or without the support of your pension adviser and/or provider, provide the following:
- Use clear, simple messaging to explain retirement income needs
- Highlight the difference between minimum, moderate, and comfortable lifestyles
- Signpost employees to tools, guidance and advice that are available
- Also have you considered whether minimum auto-enrolment contributions are sufficient for your workforce? Have you explored matching structures or nudges to encourage higher saving
Supporting better retirement outcomes is not just a compliance exercise, it’s a strategic investment in your workforce. Employers that take a proactive approach can:
- Enhance employee engagement and loyalty
- Support better financial wellbeing
- Strengthen their overall benefits proposition
- Improve long-term workforce planning
This is an issue that is not going to go away anytime soon and therefore if you would like support in reviewing your pension offering or developing a targeted engagement strategy, we can help you build a clearer path to better retirement outcomes for your employees.
Sources
