Potentially many of your employees will likely be facing a savings dilemma. Available to them are various different investment considerations, including paying into their pension and saving for a property deposit. Both are good choices, but doing one usually reduces their ability to do the other.
In this article, our Head of Pension Consulting, Adam Burn, shares his thoughts on how you can think more holistically to help your people navigate this dilemma, thus helping to improve their long-term financial wellbeing.
Key takeaways
- Learn why you should equip your people to put money towards both a property and retirement.
- Discover how rethinking your pension structure could be the answer.
- Understand the value of financial education in engaging your employees.
“Property or pension?” shouldn’t be the question
Having spent decades working in the pension space and educating people on the importance of a pension on a near daily basis, you’d think my answer to this question would be straightforward and obvious. However, it would be disingenuous of me to downplay the importance of saving for a property deposit, especially seeing as both types of savings contribute towards financial wellbeing, resilience, and freedom in retirement:
If your people choose pension over property: Retirement income assessments typically don’t account for property costs, as the assumption is that retirees will have paid off their mortgages and own their property outright. Therefore, not owning property mortgage-free at the point of retirement, and the resulting rent or mortgage commitments that may have to be maintained, could impact how far your employees’ pension savings stretch.
If your people choose property over pension: They may own a property outright prior to or at retirement age, but if this has been made possible by limiting their pension contributions, the result is that your people may have less savings to live on in retirement.
The question therefore shouldn’t be “property or pension?”, it should be “how do we equip people to put money towards a property and their pension?”, and the answer to this question will require some wider thinking from employers, beyond just providing the legal minimum pension structure.
3 ways to help your people enjoy the best of both worlds
In order to uphold your commitment to supporting your peoples’ financial wellbeing, it’s important to help solve this dilemma that many employees face. Below are some ideas on how to remove the need for your people to make a binary choice when faced with this decision:
1. Rethink the structure of your pension strategy
In the interest of securing the best outcomes for your people, and with this savings conundrum potentially threatening their long-term financial security, does this highlight the need to rethink the structure of your pension strategy? By introducing and incentivising other savings or investment options, you could make it possible for employees to contribute to their pension while also investing for shorter-term gain, all while not having to increase your overall pension investment.
Perhaps implementing a payroll deductible ISA or Lifetime ISA alongside your pension plan could be a solution? Not only is this relatively easy to implement for employers but it gives employees the option to invest in their present as well as their future, equipping them with the tools to potentially help make property ownership and a financially secure retirement a reality.
2. Improve the overall financial wellbeing of employees
Perhaps you should think broader with your pension strategy, not just viewing it through the lens of assisting your employees with their retirement savings, but with their financial resilience as a whole.
Through considering how to structure the contributions you make, understanding the challenges your people face, and developing holistic support and strategies across an entire range of financial aspects, you can help increase their financial resilience and understanding, which can help free up more disposable income and increase their ability to put money towards both a property and their pension.
3. Educate and engage
The topic of pensions can be complex and difficult to understand. This may be especially true for younger employees, who can struggle to relate to retirement and fully appreciate the value of investing money now that they won’t see the benefit of until many years in the future.
Through informational sessions and workshops, you can help your people better manage their day-to-day finances, grow their money, and save for the future. By communicating the relevance of all elements of their financial universe, including saving for both a property deposit and for retirement, especially when your people are young, you could encourage them to engage more with their finances and prioritise allocating more of their salary to important savings pots.
Author
Adam Burn, Head of Pension Consulting
For the last 30 years of his four-decade financial services career, Adam has worked in both the pension provider and employee benefit consultancy space, providing valuable advice to employers in relation to their workplace pension provision. This experience and resulting wealth of knowledge has made him a well-respected voice and figure in the pension space.
To find out how we can support you with your pension strategy and deliver key retirement support to your people when they need it most, request a call back from our pension specialists today.