The Annuity Bureau's Richard Williams sets out the tools and techniques that schemes and employers can use to get value for their scheme members at retirement, in the latest Technical View.
With so much to plan for in order to achieve the desired retirement outcome, it is no wonder employees need to be as informed as much as possible, and both schemes and employers should play an important role at this critical stage.
Action points
Establish a clear communications process for members approaching retirement.
Regularly monitor outcomes to ensure objectives are being achieved.
Consider securing advice or guidance to your members on annuities.
Preparation is key, so schemes and employers should start to communicate with members between two to five years before retirement.
This communication should become more frequent in the last year – at 12, six and three months until retirement – and aimed at showing members the importance of using the open market option to boost their future income.
Members should also be encouraged to look at the funds in which they are invested to make sure these remain appropriate for their circumstances, avoiding any sudden falls in value as they approach retirement.
Employers and schemes can also provide education for members by making online tools available to them. A package of tools can be put together to satisfy this need including the following:
State pension forecast: Easy links should be provided to the website of the Department for Work and Pensions so members can obtain a forecast of their state pension.
Modelling tools: The member can input the value of their pension pot and then see the amount of income that this is likely to achieve using different annuity products, for example an annuity with or without spouse’s pension, an escalation or guaranteed period, or a drawdown-type contract.
They can then assess how this will meet their needs in retirement, taking into consideration their attitude to investment risk and capacity for loss.
Budget planner: This can be a vital tool in the run-up to retirement, as many members will not have considered how their income and expenditure patterns will change both immediately and during the rest of their life.
This will also highlight, for example, how long their pension is going to have to last and the effect of inflation on their income.
Helping member choices
At the point of retirement, the scheme or the employer should make advice or guidance available to members to ensure they remain in good financial health long after their tenure with the company has ended.
This is easily achieved through the introduction of a helpline dedicated to the scheme, and they should not worry about any regulatory reprisals in doing so.
Whether advice or guidance is the most appropriate route will depend on the individual, following an initial discussion with the adviser about their own particular circumstances.
An adviser can also play an important role in making sure members are fully aware of the advantage to be gained by disclosing all relevant medical information, which can increase their income by up to 40 per cent.
One of the main deterrents to members seeking advice in the approach to retirement is difficulty in accessing the information they need to make a decision, an issue that has been highlighted recently by both the Association of British Insurers and the National Association of Pension Funds.
Whichever communication methods and tools schemes or employers decide to use, they should be easily accessible to members, without any barriers, as they could be crucial to a comfortable retirement.
Richard Williams is a director at advisory company The Annuity Bureau
