After five years of auto-enrolment being enforced, less than a third of people take financial advice on their pension, and this may no longer be primarily linked to the cost of financial advice
The 1st October 2017 marked the 5-year anniversary of auto-enrolment, and although the it can be deemed a success as far as building awareness, there is still a substantial amount that needs to be done to educate employees on how they should save for their retirement.
For example, many employees are unaware that in the governments second Finance Bill 2017, a new income tax exemption to cover the first £500 worth of pensions advice provided to an employee was introduced.
This was implemented retrospectively from April 2017 and allows advice not only on pensions, but also on the general financial and tax issues relating to retirement for employees. The changes replace existing provisions which limited the exemption solely to pensions advice and was capped at £150 per employee per year.
Jonathan Watts-Lay, Director, WEALTH at work, a leading provider of financial education, guidance and advice in the workplace, comments;
“With less than a third of people taking financial advice on their pension, anything that encourages employees to do so has to be a good thing.”
Now more than ever, it is important for employees to engage with their pensions, especially as pension contributions will increase from 2% to 5% from April 2018, which will be a steep rise felt with workers across the UK.
Watts-Lay continues; “As we all know, the cost isn’t the only issue when it comes to employees taking financial advice. I believe the reluctance comes from individuals not understanding what financial advice is, or what it can do for them.
In contrast, when we look at the results of employees who have attended a pre-retirement education seminar in the workplace, over 70% go on to request further information and advice following a session. The difference is that following financial education, employees will realise how complicated pension decisions can be and will gain an understanding of how financial advice can help them.”
He explains; “Supporting employees with financial education and guidance will help them to understand their needs in more detail to make better decisions pre-retirement. This then drives the process of taking financial advice, ensuring that employees understand their personal financial situation and are able to implement their retirement strategy in a tax efficient way.
The benefit here is that employees save effectively and can afford to retire, something in both the employee and employers interests.”
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