The Government has announced that from April 2017 tax restrictions for pensioners wanting to sell their annuities will be removed. This means that anyone who already has, or is going to buy an annuity, will be able to sell it for cash. Great news! Or maybe not.
What’s the issue?
George Osborne may not actually be that far off in his thinking that people could cash in their pension and blow it all on a flash car – the car may not be the end result, but the urge to spend definitely exists.
We already know individuals don’t save enough for their retirement, and that’s because they lean towards instant gratification rather than delaying for a point way off in the future. Why would employees save into a pension when they can spend their hard earned cash now? And even if they have saved up a sizeable pension pot, when the day comes that the flood gates are opened and all of these employees have complete access to their whole fund, what is stopping them from using it to refurbish the kitchen or take the grandkids to Disney Land?
The recent changing of legislations such as this, including Pension Freedom, highlights so perfectly the need for education around Pensions. Many employees don’t think about what they will do when they finish work and that they will need an income from somewhere to be able to do that.
At least in the old rules, most people had to buy an annuity and so what they had saved would go towards providing an annual income for life. The new rules are good, but with them comes the need to ensure that your employees understand the implications of their choices. Swapping annuities for cash could lead to many people being left without enough income in retirement, and it is vital to avoid that.
What can you do?
We believe it is the responsibility of employers to provide their employees with vital education. Not only to ensure they understand their pension benefit, but also to facilitate the decisions they need to make and to ensure they make a plan for their retirement. Helping employees prepare for retirement as soon as they join your company means it is in their minds from the very beginning and there’s no worry around awkward conversations or age discrimination. Retirement is something that most people want to do, so it’s important to make sure it’s the best that it can be.
Good employers care about their employees even after they leave; someone who has worked for you for decades deserves a good retirement don’t they? Most individuals spend the majority of their time at work, dedicating themselves to your business, so shouldn’t you repay their hard work by making sure they have the best retirement outcomes they possibly can?
For more information speak to your usual Jelf consultant or visit our website.