Employers need to establish corporate governance structures and compliance systems to ensure they and their employees avoid potential risks from the launch of pensions flexibility in April, employee benefits consultancy Portus Consulting urges.
New rules enabling all 55 and overs to take as much or as little cash from defined contribution pension funds as they want pose significant challenges for employers and HR departments.
The launch of pension flexibility will mean a massive shift in how employees retire with a reduced number of so-called normal retirements, more staff requesting flexible hours and taking money out of pension funds from age 55, Portus warns.
HR departments need to focus on financial education and implement structures to help staff and scheme members to achieve good outcomes from their retirement saving, it advises.
Portus Consulting points to the experience in Australia – which implemented similar changes to the UK 20 years ago – where one in four have emptied their retirement funds by age 70 and it is estimated 40% of pensioners are facing poverty.
It recommends that companies establish a committee to set standards on pension funds including oversight on issues such as the pension provider, charges and default investment funds.
The system should be bolstered by analysis of scheme members and regular engagement to focus on best value and good outcomes for scheme members. Communication with employees will be crucial and companies will need to know how flexible working affects them.
Steve Watson, Commercial Director of Portus Consulting said: “There are major implications for employers from the launch of pension flexibility and a need to develop systems to ensure good outcomes for companies and staff.
“Making a decision on the type of financial education is crucial to the process but there is advice and support out there to help employers adapt.”
Financial education will have to adapt to differing needs within the workplace with, for instance, staff approaching retirement requiring immediate support on income while younger employees need advice on saving.
Portus Consulting works for more than 160 corporate clients including global multinationals and medium-sized companies and focuses on providing strategic advice as well as pro-active benefit broking. Its affiliated business Portus Online designs, builds and manages online programmes which aim to increase employee engagement.