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(Another) downhill stroll — retirement planning

A report published this morning by the CIPD (CIPD Employee Outlook March 2015) provides yet more interesting data to the changing landscape of retirement planning. It should be remembered that we are in a period of genuine flux here given that the default retirement age was scrapped three years ago, and new pension freedoms come online in April. Both of these alterations will have a huge impact on how employees plan for their retirement.

As we recently covered in our article ‘A downhill stroll’, the decision to retire has changed for older workers, with many now considering some form of continued employment after state pension age has been reached. Today’s findings (based on a survey of more than 2,200 working adults) support the theory that many more workers will continue in the workplace past that age, although the findings are frankly somewhat gloomy.

Key facts from the survey are:

  • 43 per cent of employees think they should be contributing more than 10 per cent of their salary (against a current average employee contribution of five per cent)
  • 22 per cent did not know how much they should contribute
  • 13 per cent of employees are worried that they will never be able to leave paid employment

The CIPD also found that six in 10 have considered working beyond the state pension age. Almost half would like to do so in a permanent job (albeit a part-time one — 31 per cent).

On these figures, it appears undeniable that many will be forced to continue work as an alternative to an impoverished retirement. That is not, however, enough to suggest that all workers post state retirement age will be there for financial reasons alone. Department for Work and Pensions (DWP) findings earlier this year suggested that 33 per cent of those in work over the age of 70 did so primarily because they enjoyed working.

Yet whichever way you view these statistics, the truth is that workplace demographics are about to undergo a massive change — with a possible (probable?) upwards shift in average ages. The decision to retire is clearly changing from cliff-edge decision to a gentler path into full retirement. This shift will present many challenges for employer and worker alike in the years ahead.

The obvious solution would be to put more funds into pensions, but in the still fragile post-recession era there are only limited amounts of money available to increase retirement savings. Given these constraints, a pragmatic answer could well be better communications and support for the workforce. No employee should be left ignorant of what they need to pay to secure their target retirement income, nor should workers have an unpleasant surprise when they reach their expected retirement date.

The onus is, therefore, on the employer to provide support for their workplace saving schemes, with better financial education in the workplace, and new and improved communication methods that reach all ages and grades of the workforce. There is already evidence that employers are now engaging with this new dynamic, and all businesses should consider this as a progressive and cost-effective step towards tackling the above issues.

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