Empowering employees: How financial education can help secure a comfortable retirement 

This year marks a decade since the introduction of pension freedoms. The reform transformed how individuals access their retirement savings as it provided members with the ability to draw down their pensions in a way that suits their needs.

While this greater freedom has provided greater flexibility, it has also introduced new risks. Without a clear understanding of their options, employees face an increased likelihood of making the wrong decision or exhausting their savings too soon. Recent market conditions have heightened this risk. Increased volatility means that even ‘sensible’ withdrawal strategies could result in funds being depleted earlier than expected. 

At the same time, the ongoing cost-of-living crisis is pushing more people to dip into their pension pots. Mercer’s ‘What’s the Price of Freedom?’ report found that 38% of those who took a lump sum used it to cover short-term needs like everyday living costs.¹

Ensuring that employees have sufficient funds to maintain a comfortable standard of living in retirement involves a range of important decisions. Choosing the appropriate retirement option, determining sustainable withdrawal levels, selecting suitable investments and managing risk are all critical considerations. Given the complexity of these factors, it is unsurprising that many struggle with getting to grips with what’s on offer and what’s right for them. 

While many employees are aware of the challenges they face, they often lack the knowledge or confidence to take the necessary steps to address them. In addition, many may feel unable to afford the consultation with a financial adviser to help them navigate the process.

In fact, 50% of pension plans were accessed without guidance or advice in 2019/20, according to Mercer’s ‘What’s the price of freedom?’ report.²

However, it does not have to be this way. 

Proactive financial education provided in the workplace by an employer can play a vital role in helping employees navigate their retirement choices. It can help employees avoid common pitfalls that could jeopardise their financial security. By equipping members with the knowledge and tools they need, financial education empowers them to make informed decisions, manage risks effectively and approach retirement with greater confidence and control.

Financial education is a vital part of workplace training, yet it remains significantly underused. More than half (54%) of employers do not offer retirement planning courses, and only a third provide access to an independent financial adviser, with just 6% choosing to fund this service.³

Employers that recommend independent financial advisers or cover consultation costs help their employees make informed decisions that support a comfortable retirement after years of hard work. Having dedicated much of their lives to their careers, employees deserve the opportunity to enjoy a secure and peaceful retirement.

At Mercer, we’re dedicated to improving the financial wellbeing of employees through tailored education, guidance and expert advice. This enables them to make informed decisions and secure a comfortable retirement. Our financial education workshops empower businesses to integrate financial wellbeing into their broader strategy, equipping employees with the knowledge and tools to confidently navigate retirement planning and avoid common pitfalls.

^Footnotes:

1), 2) What’s the price of freedom?

3) DC MOT Report