WEALTH at work reveals its latest survey results and discusses the steps trustees can take to support members at retirement. There are many risks around accessing pensions which have become increasingly complex and uncertain. With this in mind, we carried out research with the Pensions Management Institute to look at this in more detail. The survey revealed some interesting findings and highlighted some of the concerns trustees have for their members, which include:

Pension scams

Nearly all (94%) of trustees fear their members nearing retirement will face predatory attention from scammers. Reduced household income caused by the pandemic has meant that some members are more vulnerable than ever and a report by Action Fraud found that pension scams had become one of the most common types of fraud to occur last year.

Unfortunately, it’s a problem that has been around for some time and the Pension Scams Industry Group estimate that £10bn may have been lost to pension scams by 40,000 people since 2015.

Tax

Almost 9 out of 10 (89%) trustees are concerned that their members may not understand the tax implications when accessing their pension and these anxieties are not misplaced. Individuals can unknowingly and easily incur huge tax bills when accessing their pensions, all of which can have a material impact on income levels in retirement.

Members need to be aware of the tax traps which include moving into a higher marginal income tax rate when cashing in defined contribution pension pots, triggering the Money Purchase Annual Allowance or losing out on the ability to pass on a pension inheritance completely free of tax.

DB pension transfers

4 out of 5 (80%) trustees have concerns about their members’ lack of understanding of the risks they face if they transfer out of their defined benefit (DB) scheme. Assessing whether it is right to transfer is highly complex with multiple risks to consider around how to manage the money once transferred. Ensuring access to appropriate advice is key, which is, of course, a requirement for anyone looking to transfer a defined benefit scheme over the value of £30,000.

Member engagement

Gone are the days of looking at an annual benefit statement once a year and simply receiving a guaranteed income at retirement. Now members have complex and often perplexing choices. Many simply procrastinate action or put the paperwork in the ‘too difficult’ file. This experience is mirrored in our findings which show 7 out of 10 (70%) trustees are concerned over a lack of engagement with their members. Financial 

education and guidance play a fundamental role in improving engagement with members. Whilst information may be available for members on websites or in literature, having someone to speak to about their pensions is far more engaging. While social distancing rules mean that many have had to restrict attendance at face-to-face seminars, digital solutions such as interactive online seminars, and telephone support for guidance, has become increasingly popular.

Running out of money

When we consider the concerns already mentioned, it comes as no surprise that 3 out of 5 (60%) of trustees are apprehensive that their members’ money will run out too soon in retirement. This may be due to many reasons including poor decision-making at retirement, not saving enough throughout life, underestimating life expectancy or simply not managing their investments appropriately during what may be 30 years or more in retirement.

Support levels are on the up

On a positive note, the survey found that almost half of trustees provide financial education (49%) for their members at retirement, which is an increase of 14 percentage points since our survey in 2019.

There has also been an 18 percentage point increase in the provision of financial guidance for members with 46% now offering it.

Nearly a third (30%) of trustees are providing or facilitating regulated advice for their members’ at retirement, which is up 9 percentage points from the 2019 results.

Many members lack the resources to realise the multiple risks around accessing their pensions. It’s therefore really encouraging to see that more trustees are now putting financial education, guidance and regulated financial advice in place to help their members understand their retirement income options, as this support is needed now more than ever. Carrying out due diligence on providers can make the process far more robust. This should include checking that any financial education and guidance providers are workplace specialists with experience in providing support to members. This will help members understand key issues at retirement such as tax implications, risks around DB transfers and how to spot a pension scam. Due diligence on regulated advice firms should cover areas such as the qualifications of advisers, the regulatory record of the firm, compliance processes (e.g. compliance checks of 100% of cases), pricing structure and experience of working with employers and trustees.

Ultimately, empowering members by providing them with access to appropriate support can help them become more financially resilient and should lead to better outcomes for all.