This year’s budget put the focus very strongly back on retirement with its pension proposals to come into force next year. Although the immediate impact is on pension managers, there is also a significant implication for HR on how organisations manage the whole topic of retirement in the future.
It’s worth stepping back and thinking about ourselves as individual employees first.
There are three challenges we now face related to retirement:
1. When is the right time to retire?
2. How will I spend my time in retirement?
3. Will I have enough money for the lifestyle I want?
These challenges impact our decision making and therefore also impact the organisation’s ability to manage retirement. Taking each in turn:
When is the right time to retire?
This is a challenge that has largely come about as a result of removal of the Default Retirement Age (DRA). It’s actually a difficult decision, especially for those who are at all concerned about retirement and how they will spend their time, or who just aren’t very good decision-makers. There is a real danger of people drifting on at work rather than making that decision, to the detriment of themselves and potentially the organisation. There is also a danger that those who haven’t planned their retirement have an emotional reaction to the idea of retirement rather than a logical one.
How will I spend my time in retirement?
For those not close to retirement yet, this may not seem a particularly difficult challenge but suddenly when we retire we potentially have 40-50 hours of extra leisure time, on top of previous leisure time, every week, with hopefully 20-25 years of good active life stretching ahead of us. In addition, for the first time in our lives, we have no structure. Previously we have always had structure; first from our parents, then from school, then from work, but now suddenly there is nothing to fall back on. It is a great opportunity to write our own ‘job description’ but it is also a tall order to decide how to spend all this time for the next 20-25 years in a way that is both enjoyable and fulfilling.
Traditionally this challenge has been addressed by ‘good employers’ offering lifestyle-based pre-retirement courses. These courses enable employees to plan what retirement can be like for them personally, see the opportunity it presents and remove concerns. However, typically such a course is offered in the last year before retiring. If it is going to help individuals also decide the work/life balance they want and to decide when they want to retire – or partially retire – it ideally needs to be done 2 or 3 years before potential retirement.
Will I have enough money for the lifestyle I want?
This challenge of course is rather fundamental. Without having tackled it our retirement probably won’t be the one we really want, or when we want; and for younger people, with the move to defined contribution schemes and increasing financial pressures, it is getting harder.
Clearly, leaving consideration of finance to 2 or 3 years before retirement is no good, because by that time you have little room for manoeuvre to build up additional funds if you decide that is what you need. Ideally this should start early on in people’s careers, but there are two problems: for most young people retirement is a very distant prospect and very few have a good understanding of finance. So if we want to help employees we need to help them understand finance early on, and within that to understand the value of starting to save for retirement early.
There is also a key point around age 50 when retirement does typically start to assume a bit more reality and there is still some time to have an affect on finances. So assistance with taking stock at this point is also of high value to the individual.
Does it help the employer?
There is no doubt that providing financial and lifestyle education at appropriate points would be seen as a valuable benefit by employees. It would help them throughout life and help to ensure they are financially fit when they get close to potential retirement, see the opportunity that retirement – or partial retirement – presents and know how to make the most of their retirement. Organisations providing such career-long assistance would be seen as good employers, but in addition, the organisation would also benefit by both removing constraints to deciding to retire and engendering logical, rather than emotional, discussions about retirement.
What do you think?
We have produced a free guide to managing retirement, please click here: http://www.retirement-courses.co.uk/guide.shtml
Tony Clack is managing director of Laterlife, recently acquired by Jelf Employee Benefits