Employees missing out on pension freedoms

25th January 2016

A new survey from WEALTH at work, a leading provider of financial education in the workplace, supported by guidance and advice, has found that many UK companies are not giving their employees access to the new pension flexibilities.

Many unable to access the new pension flexibilities through the workplace

Survey results reveal that almost one third (32%) of employers do not provide access to the new pension flexibilities in their scheme at-retirement.

Jonathan Watts-Lay, Director, WEALTH at work comments, “There could be many reasons why employers may not be able to provide the new pension flexibilities. Employers are obviously worried about employees spending their entire pension, as well as the increased cost of administering the requests or simply not having the infrastructure in place to provide it.”

He continues, “It’s not all bad news as there are providers like WEALTH at work who can deliver a full service on behalf of employers, from financial education and guidance, supported by regulated advice and then ensuring the appropriate service provision is available to implement all options at retirement – whether that is an annuity, drawdown, a cash withdrawal, or indeed a combination of options over time.”

The survey also revealed that over a quarter (26%) of employers do not allow their employees to take money from their pension (from age 55) whilst they are still working for them.

Watts-Lay comments, “This must be frustrating for employees, but it is not surprising. Employers must be concerned that if employees access their pensions early, they may not be able to afford to retire when they want to.”

Savers heading towards retirement income disaster?

The new pension flexibilities anticipate more savers looking at a range of retirement income options, and therefore, glide path options (how pension savings are invested in the years leading up to retirement) are changing to adapt to this.

Survey results reveal that when employees do not make an active investment decision (glide path selection), 43% of employers will default employees to a glide path suitable for an annuity purchase. This is despite a significant fall in annuity purchase as a preferred option for many.

Watts-Lay comments, “This is pretty alarming given the significant fall in annuity purchase over the last 18 months. In the new world of pension freedom and choice, an annuity purchase may not be the most suitable option and it may leave many on an investment path which does not fit with their retirement plans. This could potentially result in a reduced income in retirement, with what could have almost disastrous consequences.”

All statistics quoted are from the WEALTH at work: Pension Changes Survey – Our Survey Results 2015.

The research received 94 responses which were completed online and via paper over 3 months from August to October 2015.