Financial Counselling - Why Employers Need it to Plan Manpower

July 2019
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The over 50s make up one third of the current workforce [1]. If Brexit brings tough immigration rules, employers in some industries may face labour and skills shortages. While the answer could lie in technological innovation and automation, retaining and retraining a skilled workforce will become a key challenge. At present 80% (men) and 75% (women) in their mid-50s are employed, by the time they reach their mid-60s this has fallen to 35% (men) and 25% (women) [2]. Just under 11% of over 65s are still economically active [3].

Until very recently retirement was something that happened at a set age, usually 60 to 65, often not at the individuals choosing. Until 2006 it was legal to insert a retirement clause into contracts of employment and an employee could be legally dismissed at that age. The Age Discrimination Act ended that, except in very limited circumstances.

Elephant in the Room

This has left a question mark hanging in the air between older employees and employers, with human resources departments not knowing which employees plan to stop work when.

Employees from their mid- 50s onwards may fear being overlooked for promotion, or worse, selected for redundancy. By 2025 there will be 1 million more workers over 50 and 300,000 less under 30 [4]. Finding the optimum solution to retaining skilled and experienced workers and having the flexibility to offer alternative working patterns will be key.

The Squeezed Generation

Generation X (40-55 years) is not only squeezed in terms of family responsibilities, often caring for children and the elderly, but also often lack adequate retirement provision.

They will not get state pensions until age 67/68. While they have auto enrolment pensions from 2012, pensions savings before then may be patchy and unlike older colleagues, are less likely to benefit from defined benefit pensions. Research conducted by Aviva has shown that 63% of over 50s now expect to retire later than they thought they would 10 years ago.

When age discrimination was legal, a defined benefit pension often part replaced the earnings of the retiring worker. Defined benefit schemes offering ongoing accrual are rare in the private sector. Money purchase pension schemes have replaced these with lower pension contributions overall and less certainty for employees, whose retirement income will depend entirely on investment returns.

As this current squeezed generation makes up an ever-bigger proportion of the workforce, having open dialogue with them and offering flexible solutions is likely to be more important than ever.

Need For Affordable Advice

The need for flexible working patterns at older ages was recognised by the Government in 2015 by relaxing rules around pensions access. They can now be drawn from age 55 on a flexible basis, but this raises its own challenges. Accessing too much too soon can create a disproportionate tax bill, limit future pension savings with the benefit of tax relief and make long term income less sustainable. Despite all these risks, 32% of those exercising flexible access to their pensions, do so without the benefit of advice [5]. FCA research has shown that 8% of adults would like to access advice but don’t know how to do so [6].

Undoubtedly pensions are a complex subject, shrouded in jargon and obscure rules. The State scheme has undergone changes from 2016, so complex that over 360,000 were sent incorrect forecasts by the DWP. Not knowing where to turn for advice or how much it might cost has put many off any real engagement with their retirement savings.

Lack of forward planning, confusion about the value of current savings and future needs all leads to an uneasy atmosphere of employees fearful of change and employers uncertain of the supply of labour. One way in which employers and their staff may resolve this is to offer access to financial counselling. 

Employees start to discuss for the first time, with their partners, what retirement will mean for them and how they can make the most of their remaining working years to plan for it. This can be delivered via seminars, webinars, information and guidance on the company intranet.

It can be followed up with one to one advice, access to a chatroom or telephone consultation with a qualified adviser able to answer questions and help the employee plan in detail. All matters are dealt with confidentially, with advice regulated by the Financial Conduct Authority, which offers additional consumer safeguards.

Employers can fund financial advice for employees with up to £500 per employee per annum offered as a non-taxable benefit. Feedback has shown us that employees really appreciate this type of help. Putting employees back in control of their retirement plans enables employer and employee to plan with confidence for the future.

Kay Ingram
Director of Public Policy, LEBC

Please remember, no news or research item is a recommendation or advice to buy. LEBC Group Ltd is not responsible for accuracy and may not share the author’s views. If you are unsure of the suitability of any investment or product for your circumstances, please contact an adviser. All information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation, are subject to change. Taxation advice is not regulated by the FCA.

[1] Centre For Ageing Better 2018
[2] Department of Work & Pensions 2017
[3] ONS Labour Market Survey Jan 2019
[4] Centre for Ageing Better June 2019
[5] FCA Retirement Outcomes Review July 2018
[6] FCA Review of Retail Distribution Review and Financial Advice Market Review May 2019

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