Only a third of UK businesses have reviewed their pensions strategy in response to the challenge of the ageing workforce. This is despite the fact that more than half (60%) of workers in the UK admit to not having any kind of retirement goal in terms of either savings targets or age of retirement, and only 15% of UK workers are confident that they will have enough money saved in order to retire.
Most employees are split between feeling powerless and anxious about their retirement savings and income (42%), and indifference, where they simply don’t think about their retirement (43%).
New research from Capita Employee Solutions reveals the challenge that UK businesses are facing as greater number of workers approach retirement age with pensions savings that are nowhere near adequate to provide for a comfortable retirement. 89% of HR leaders say that the ageing workforce and pensions shortfalls are creating massive challenges. They also cite employees looking to continue working beyond retirement age, along with regulatory change, as the most significant trend impacting their pension provision over the next two years (52%).
However, the research – amongst 200 pensions managers, 200 senior finance professionals, 100 senior HR professionals and more than 2,000 employees – reveals that only 38% of businesses have reviewed their pensions strategy to reflect the changing dynamics of work and the challenge of managing an ageing workforce. The majority (51%) report that they are planning to review their pensions strategies within the next 12 months in light of this growing challenge, but 11% have no plans to do so.
The research suggests that, such is the scale of the challenge now, most organisations would prefer to completely re-set their pensions strategy and policy, rather than tweaking their existing frameworks. 64% of HR leaders and 66% of finance leaders believe that starting again from scratch and developing a completely new pensions strategy, rather tweaking their existing strategy, would deliver optimal outcomes for their organisation.
Related to this, the majority of pensions professionals (56%) and HR leaders (65%) see the merits of de-coupling the state pension age from retirement age and believe this could be a feasible approach within their organisations.
Gareth Pickles, Managing Director, Capita Employee Solutions, said: “There is clearly a real appetite amongst business stakeholders to develop new approaches to pensions, with fresh thinking and innovative solutions. As an industry, we have to re-define what retirement means and re-structure compensation and benefits to put more focus on long-term savings, to meet the needs of the future economy and our current and future workforce. This will mean employers offering a more targeted and personalised mix of rewards, better supporting the needs of contract and gig workers, and ultimately, driving better outcomes for both employees and organisations.”
As greater numbers of people reach state pension age without the means to retire, the general workforce is predicted to become more engaged with pensions, as they see first-hand the impact that inadequate savings is having on colleagues and friends. 90% of HR leaders expect to be put under greater pressure to increase pension contributions, and 92% feel that they will need to be more transparent with employees about ‘retirement realities’.
However, the research highlights the current lack of engagement around pensions and a lack of understanding amongst a significant proportion of the workforce. Only a quarter (26%) of UK workers claim to know exactly or to be able to give a near estimate as to how much money they have saved in their company pension, whilst a third (34%) admit to having no idea about their level of savings. Remarkably, this figure increases to 38% amongst employees aged 55 and over, despite their nearing the state retirement age.
The biggest concern for employees is that they do not or will not have enough money saved up to retire comfortably, with 83% of workers citing this as a worry. Close behind is a lack of understanding about pensions and investments to make considered decisions (77%) and not contributing enough into pensions savings on an ongoing basis (77%).
Other employee anxieties around pensions savings include poor performance of existing pensions investments (74%), a lack of trust in financial markets and advisors (71%), and uncertainty about how to find and track down previous pension schemes (63%).
Alarmingly, the average UK worker still expects to retire at the age of 65. Younger workers expect to work later into their lives than older workers, with those who have recently entered into the workforce (aged 18-24) predicting that they will retire at the age of 68. Interestingly, the research shows that so called ‘Generation X’ workers, between the ages of 45 and 54, expect to retire at the age of 63, earlier than the current state pension age.
Gareth Pickles concluded: “The research shows that most organisations are fully aware of the challenge facing both employers and employees, and are willing to take on responsibility for finding solutions. Employers need to find ways of engaging with employees around pensions in a much more meaningful and transparent way, acknowledging the worrying realities of insufficient pension savings for many workers and helping them to make the best decisions they can, based on the options available to them.”
The full research findings can be found in the white paper, ‘The Future Face of Retirement: Re-thinking pensions provision for the future workforce’, available for download here.