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The retirement readiness gap: How HR can get employees on track

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Many employees are unprepared for retirement. This shortfall can harm companies too. Employees stressed about retirement financing may lose workplace productivity.

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According to research by Phoenix Insights, mid-life employees, particularly those aged between 45 and 54, are vulnerable to pension inadequacy.

The average 45-54-year-old in the UK has £88,000 saved for retirement, significantly behind the Pensions and Lifetime Savings Association (PLSA) estimate for achieving a moderate standard of living in retirement (£248,000).

This deficit is partly due to this age group missing out on certain schemes that have benefited others. For instance, they are less likely to expect a defined benefit workplace pension when they retire compared to those aged 55 and over.

They also missed out on the benefits of auto-enrolment for as many as 21 years of their working life, as the policy came into force in October 2012.

The role of HR teams

HR teams play a pivotal role in addressing these challenges. Why?

Retirement readiness aligns tightly with HR’s duty to employee wellbeing, the ability to leverage existing HR resources and expertise, and the overarching legal and ethical obligations companies have to proactively support it.

Unlike financial advisors who may only engage near retirement, HR interacts with employees consistently throughout their working years from onboarding to departure. This allows more opportunities to encourage retirement saving.

HR oversees compensation, healthcare benefits, time-off policies and other programs that interconnect with retirement preparedness. They are uniquely positioned to help employees balance all factors in retirement planning.

Similarly, having financially secure retirees reflects well on the company and shows it cares about employees’ wellbeing beyond just the workplace. This helps with talent retention and recruitment.

There are various laws around workplace retirement plans that HR must implement and stay on top of. Keeping the company compliant demonstrates commitment to employee retirement needs.

Alyshia Harrington-Clark, head of direct contributions, master trusts and lifetime savings at the PLSA, suggests that employers should encourage saving above the minimum contribution of 8%.

This starts with engagement. HR teams can highlight workplace pension benefits such as tax relief and employer contributions, which can significantly enhance retirement prospects.

Kate Smith, head of pensions at Aegon, recommends that employers focus on regular and manageable financial education. Employers could encourage their employees to take a mid-life financial and wellbeing MOT to check whether they are on track for the retirement they aspire to.

This could include encouraging employees to sign up to view their pension online, consolidate their pensions, use online planning tools and make active decisions such as increasing pension contributions.

What to watch for?

One trend to watch is the increasing importance employees place on pensions. Research from digital pensions platform Penfold found that 90% of UK workers say a pension is the most important benefit their employer can offer.

HR teams should be aware of this trend and ensure that their pension offerings are competitive.

While auto-enrolment has made pensions more accessible, it has also introduced new compliance measures. HR teams must ensure that all eligible employees are enrolled in a workplace pension scheme.

They must also manage opt-outs and opt-ins, support the re-certification of schemes, and provide ongoing support for auto-enrolment administration.

Risks of doing nothing

  1. Lost productivity – Employees stressed about finances and unprepared for retirement may be distracted at work and put less effort into their jobs. This can reduce productivity.
  2. Higher turnover – Workers who feel they cannot afford to retire may continue working well past when they had hoped or leave for other jobs with better retirement benefits. This increases hiring/training costs.
  3. Reputation risks – If many employees end up struggling financially in retirement, it can damage a company’s reputation as an employer and make talent recruitment more challenging.
  4. Litigation risks – Employees who feel a company did not properly inform or educate them on saving enough for retirement may seek legal remedies. Courts have upheld “fiduciary duty” cases against companies.
  5. Rising healthcare costs – Retirees without adequate savings tend to rely more on company-subsidized health insurance. This raises costs for the employer.
  6. Loss of tribal knowledge – If retirement-ready employees feel forced to delay retirement, younger employees miss opportunities to learn from their experience before they leave the workforce.
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