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UK Pensions Speedbrief: Eversheds’ pension freedoms survey: 81% of employers concerned their staff will make poor financial decisions

  • United Kingdom
  • Pensions

17-10-2014

81% of employers are concerned that their staff will make poor financial decisions when they are given new pensions freedoms in April 2015 and 84% believe that the Government’s new guidance service will not be sufficient to prevent this. Despite these concerns, only 36% of employers are planning to provide financial education to their staff in light of the planned changes.

These findings are contained in a survey that we recently conducted of over 280 employers and over 120 trustees and pension providers that operate defined contribution pension schemes. The survey sought views on the new freedoms announced by Chancellor George Osborne in the Budget earlier this year and which are due to be implemented by the Taxation of Pensions Bill, which was introduced into Parliament this week. The planned changes will mean that, from April 2015, individuals will be able to take all of their pension savings as cash if they want to and they will no longer be required to secure a retirement income with their pensions savings by purchasing an annuity (which is the practical effect of the existing tax rules for most savers).

Key findings

The key findings from our survey are:

  • 84% of employers and 80% of trustees and providers welcome the Government’s plans to give individuals freedom over how they use their pension savings.
  • However, 81% of employers are concerned that their staff will make poor financial decisions when the new freedoms come into force and 84% think that the Government’s new guidance service will not be sufficient to enable their staff to make good financial decisions.
  • There is even more anxiety among trustees and providers, with 88% saying that they are concerned about their scheme members making poor financial decisions and 92% saying that they thought the Government’s guidance service will not be sufficient to prevent this.
  • 61% of employers are concerned that their staff will spend all, or most, of their pension savings while they are still employed to their organisation and then be unable to afford to retire. Despite this, a majority of employers, 62%, do not think that it is any of their business how their staff spend their pension savings. Whereas 34% would be unhappy if their staff spend their pension savings on things other than securing a retirement income.
  • Despite expressing concerns about how their staff will use their pension savings and the likelihood of them making poor decisions only 36% of employers are planning to provide financial education to their staff in light of these changes.
  • On a more positive note, 67% of employers and 77% of trustees and providers think that individuals will be more engaged with pensions as a result of the changes.

Click here to access the full report of the results of our survey.

Comment

Francois Barker, Head of Pensions at Eversheds LLP, says “It is clear that there is widespread concern among employers that individuals will not be adequately equipped to make informed decisions when the shackles come off peoples’ pension savings next April and the vast majority of employers do not believe that the Government’s guidance guarantee will address this.”

“From next April, individuals have freedom over how they use their pension savings and they will no longer have to use them to secure a retirement income. This has the potential to fundamentally change the attitudes of individuals and employers towards pensions. On the plus side, individuals are likely to be more engaged with pensions as they are finally able to do what they want with their money. On the downside, employers could find that staff for whom they have contributed significant amounts in pension contributions cannot afford to retire because they have spent it on other things. This may cause some employers to review their pensions policies.”

“The fact that the vast majority of employers, trustees and providers support the planned changes despite their clear concerns shows that it is hard to argue with the principle of giving people the freedom to make their own choices. But employers and the pensions industry are still left holding their breath knowing that this freedom might well have unintended consequences.”

“Trustees, pension providers and employers have a lot of work to do between now and next April to prepare for these changes and to ensure that individuals are aware of what is happening. Our survey showed that a lot of schemes have not yet informed their members about the planned changes despite the fact that individuals who are approaching retirement over the next few months clearly need to know about them. The difficulty for trustees and providers is that a lot of the detail is still not yet known, as the Treasury is running hard to catch up with its own policy announcements.”

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