For employers, the cost of providing a pension scheme is, in many cases, a large part of the cost of providing the full rewards package for workers. Couple this with the legal requirement under automatic enrolment to enrol “workers” into pension schemes, and you would think most employers would be keen that their employees understood how pension savings work and maximise their benefits. At a time when more and more employers are revisiting the social contract they have with employees, perhaps it’s time they ask themselves what they want out of providing a workplace pension.
Worryingly, therefore, a survey out this month by WEALTH at work suggests 91% of employers believe employees do not understand the tax rules when withdrawing money from their pension. Now, pension tax rules can be complex, but the basics are not rocket science. While employers cannot normally give financial advice to individual employees on what they should do with their pension savings, they could do much more to raise employees’ understanding of the pensions tax system.
Serious flaw
Recent research by Saga found savers have accessed £3.2bn from pension pots without advice. If, as I suspect, a good many of the people withdrawing that £3.2bn have failed to grasp the tax rules, this is a serious flaw in both automatic enrolment and the UK pension system generally. I note that Saga Money’s Jeff Bromage was “incredibly disappointed” that the Chancellor failed to address the need for more financial advice relating to pensions in his Spring Statement a few days ago.
In the absence of government intervention, employers may be missing an opportunity here to improve the financial wellbeing of their employees at practically no cost to themselves. By making sure that at the very least employees understand the basics of the pension tax system, and don’t lose out to the taxman through ignorance, they could improve employee satisfaction with their rewards package and the benefits it provides. A greater understanding of the basics could also lead to increased pension savings by employees and greater take-up of financial advice on retirement. It’s a win-win for both employers and employees. The only loser could be the taxman.
When 91% of employers have identified a significant problem in relation to pensions, and therefore their reward package to employees, the question is what are they doing about it?