As an employer, employees may consider you the first point of contact for questions about their workplace pension. And when they enter their 40s or 50s, retirement planning and pensions might be of growing importance to them. While some will be in sound financial health and confident in their future plans, others may be anxious about the prospect of life after work.
Being able to share trustworthy information and confidently point them in the direction of further guidance could be highly appreciated and productive. Here are some key pension questions you might be asked by your employees – and how to answer them.
1. How do pensions work?
If your employees haven’t really been paying attention to their pension, knowing the basics is a good place to start. A key resource to signpost them to is the Government’s MoneyHelper service for a host of pension information, guidance and impartial advice. Pension Wise, a service from MoneyHelper, also offers guidance for those over 50 with a defined contribution pension pot. While these make a solid starting point, as an employer you might want to make sure you’re informed and up to date with the main points yourself too.
Make sure you know what percentage of your employees’ taxable salary they pay in each pay period, and how much you contribute as employer. The minimum standard is a total 8% contribution, with at least 3% contributed by the employer – but you might choose to pay in more as a workplace benefit.1If an employee wants to increase their contributions, make sure you know how they can do this so you can assist them.
Your employees may want to know how their money is invested. To show them how their pension fund is allocated, it’s helpful to know where employees can find the fund factsheets and key investor information documents of their pension funds. These can be requested from your workplace pension provider, but they may also be available from within your employees’ pension account. So, encouraging them to activate and log in to their accounts could be the simplest way for employees to find out more about their investments.
These documents will offer a breakdown of the assets in which the pension fund is invested. This could include assets like company stocks, unit trusts, bonds, property and money market investments. These documents should also show how the fund has performed in the past, allowing investors to see if their investments have increased or decreased in value over time.
Employees might want to know how and when they can withdraw their money from their pension. The minimum age at which most pension savers can begin to access their pension – known as the normal minimum pension age (NMPA) – is 55. This is increasing to age 57 on 6 April 2028.2
How your employees choose to draw on their pension pot will likely depend on their retirement plans. Here are some of the main types of benefit options:
Income drawdown – This is where retirees can take a portion of their pension pot, while keeping the rest invested in the pension scheme.
Annuity – This is a product that retirees can buy with their pension pot, and which guarantees a regular income for their life. These products are usually sold by insurance companies.
Lump sum – As the name suggests, this option allows the retiree to take a series of lump sums from their pension pot as and when they need it.
Clearly there’s no ‘one size fits all’ solution for your employees when it comes to deciding what to do with their workplace pension. Each of the options outlined above will have tax and cost implications. For example, employees should usually be able to withdraw a 25% lump sum of their pension tax-free, with the remaining amount subject to tax before they receive it.3 Different conditions may apply depending on the circumstance. If employees want in-depth detailed advice on their pension options, they may want to consult a qualified, regulated financial adviser. The MoneyHelper website could help them find a suitable adviser – there’s likely to be a charge for this advice.
It’s also vital to ensure your employees understand that the value of the money invested in their pension pot can fall as well as rise and isn’t guaranteed. They may get back less than they put in.
2. Is their pension on track?
When your employees start thinking more deeply about their retirement plans, they’re going to want to know if their pension is on track. Only they can know the answer to that, based on what they want their life after work to look like. However, as an employer, you can provide some common benchmarks and resources that can help them discover if they’re on track to meet their goals.
One way of helping employees think about what kind of retirement they may want is to encourage them to put together a written retirement plan. This plan could include considerations like a description of any debts they may want to address before retirement.
There are also some general figures your employees may want to keep in mind when forecasting how much they may need to fund their desired lifestyle in retirement. You can point them to the Pensions and Lifetime Savings Association (PLSA) guide to retirement living standards.
The guide suggests that retired couples living outside of London need an annual income of at least £30,600 to maintain a ‘moderate’ level of financial security and flexibility. This rises to £36,200 per year for couples in the capital.4 This information will help employees who want to know if their pension is on track to provide enough for a comfortable retirement. It’s worth noting that this research is from 2021, and so doesn’t take into consideration the current cost of living crisis. This could mean people may need more than this over time.
Those looking to better understand what certain choices now may mean further down the line can also create a loose forecast of their retirement income using a variety of free online tools, like MoneyHelper’s online pension calculator. Some providers might offer their own forecasting tools – if we’re your provider, you can point scheme members to modelling tools within their online accounts. Of course, resources like these should never be viewed as a form of financial advice, particularly as they may be based on assumptions and not take into account factors like product charges and inflation.
3. Should they combine their pension pots?
People will typically work for several different employers over their career. So it’s likely that many of your employees will have more than one workplace pension pot. They might be wondering whether it’s worth consolidating those pots into one place.
Combining isn’t right for everyone. Whether this is the right choice for your employees will depend on a number of factors. They may lose features, protections, guarantees or other benefits. Employees should ideally look to compare products before combining their pension pots, and to speak to a financial adviser if they’re unsure. Remember that there’s likely to be charge for the advice.
4. How can they find a lost pension?
If your employees have had multiple jobs they may have lost track of one or more previous work pensions. Those who want to trace a pension pot they’ve lost track of can use the Department for Work and Pensions’ Pensions Tracing Service. This free service saves employees time and effort trying to hunt down their pension details themselves.
To offer more convenient visibility of their pension savings and investments, you may also want to encourage your employees to register to view and manage their pension plan(s) online. All large pension providers should offer this facility.
5. How does the State Pension work?
The State Pension is also likely to play a part in helping your employees meet their living expenses as they contemplate life after work. Those who don’t yet know how much they can expect to receive can use the government’s online State Pension forecast tool.
They may also want tips on applying to draw the new State Pension, as it isn’t paid to recipients automatically on a particular date. State Pension entitlements are based on the National Insurance (NI) contributions over their working life, so some may want to check their contribution record via the government website. The site also gives information on how to make voluntary top-ups to increase the amount they can receive at retirement – as well as the conditions that apply around doing so.
For more information, point your employees in the direction of our customer article, What is the State Pension and how does it work?
Support employees with pension basics
Being on hand with the information employees need about their pension will help to show that you value them. It may also help them to feel in control of their financial future, which in turn will help them to continue playing a productive role in your organisation. Use this article as a starting point to help you build a toolkit of trusted, reliable sources of information, and support your employees on their path to feeling confident with their pension plan.