How to enable construction SMEs employees to retire securely

Employers can play a key role in supporting their workforce's pension saving strategies – but it is down to employees to keep themselves informed about legislative changes and economic pressures


  • Nikki Moss

26 June 2024

Professional business executives office team working using digital tablet computer sitting at table. Two middle aged colleagues company board discussing smart technology at corporate meeting.

With recent updates to pension regulations coming into effect, including changes to annual and lump sum allowances as well as increases in the state pension age, retirement planning is more important than ever to ensure the financial well-being of the workforce.

In construction, the situation can be even more complicated: the industry is particularly exposed to changes in the economy, meaning that employment can be unreliable.

But SMEs can make themselves attractive places to work by proactively supporting their employees' retirement planning.

Clarity on lifestyle and charges shapes planning

Effective retirement planning starts with employees developing a clear vision of life after work, which will inform their decisions.

Next, they should thoroughly review their pension arrangements, evaluating the income they require for their proposed retirement, their healthcare needs and their expected lifespan, comparing this with their current pension savings.

There are lots of online tools to help you do this, such as the MoneyHelper pension calculator, offering realistic projections and helping you predict how much money you might need in retirement and how much you should be saving now, in order to reach that goal by your desired retirement age.

However, cost of living pressures mean that retirement may be more expensive than expected.

The Pensions and Lifetime Savings Association for instance recently adjusted its estimate of the annual amount needed for a moderate retirement to £31,300 for a single person and £43,100 for a couple, up from £23,000 and £34,000 respectively in just a year.

This was prompted not only by the rising cost of living but also the changing expectations of retirees.

Another important consideration when planning retirement is tracking down all previously accrued pension pots.

With £27bn in unclaimed pension funds in the UK, those who recover the money they are entitled to can significantly enhance their retirement savings.

Gathering old pots into a current workplace pension can simplify management, and employees could also save money by consolidating any maintenance charges.

However, there are also reasons not to transfer other pension savings into one place – some providers charge higher fees than others, and some may charge a fee for processing a transfer, depending on their terms.

Understanding the terms and conditions is therefore essential to mitigating risks and potential outcomes.

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Employers can support saving strategies

Employers can support their workforce's retirement planning in several ways.

One is by enabling employees to increase monthly savings by, for instance, implementing salary sacrifice schemes that reduce taxable income and National Insurance contributions, efficiently boosting retirement savings.

The pension annual allowance, which currently stands at £60,000, allows employees to maximise tax relief and potential savings.

While employers should not offer financial advice, unless they have access to an independent and qualified adviser, they should certainly make employees aware of their options.

Businesses can also play a vital role as employees approach retirement, when it becomes increasingly critical to adjust investment strategies to safeguard retirees' future financial stability.

Employers can ensure that pension investments are strategically managed with a so-called glidepath approach, which systematically reduces investment risk as an employee gets closer to retirement age.

Initially, the investment portfolio may be more heavily weighted towards higher-risk assets such as stocks, which offer greater growth potential over the long term but tend to be more unstable in the short term.

As retirement nears, the strategy can shift towards more conservative assets such as bonds and cash equivalents, which are less volatile and offer more protection for the capital accumulated over the years.

This transition helps to mitigate the risk of significant losses from market fluctuations that could severely affect the employee's retirement funds.

'The pension annual allowance, which currently stands at £60,000, allows employees to maximise tax relief and potential savings'

Keeping up to date is crucial to informed approach

Regular communication from pension providers is essential for keeping retirement planning efforts on track.

Providers typically engage with members through means including statements that provide updates on the value of pension pots, newsletters sharing useful insights about market trends and new regulations, and targeted emails or alerts about other relevant developments such as changes in tax laws or new investment opportunities.

Offering access to resources such as Pension Wise is also vital: this is a government service that offers impartial guidance free of charge about retirement options to people aged 50 and older.

It helps them understand the different ways they can access their pension pots, and the implications of each. Alternatively, employees may wish to speak to an independent financial adviser.

It is crucial for employees to stay informed about legal and financial changes and their implications for retirement planning.

The state pension age in the UK is set to increase to 67 between 2026 and 2028, with a further rise to 68 scheduled between 2044 and 2046.

In addition, the minimum age for accessing private pensions is scheduled to rise from 55 to 57 by 2028.

These changes underscore the importance of early and informed planning about accessing pension savings, tailoring strategies to personal and financial circumstances.

Varied options enable income flexibility

Once an individual retires, one option they have is to keep their pension savings invested.

This approach, often referred to as income drawdown, may allow the pension pot to grow further, because the majority of funds continue to be invested while retirees withdraw a flexible income.

This method suits those who are comfortable with ongoing investment risk and prefer flexibility in how much they withdraw and when.

Alternatively, employees may opt for a guaranteed income by purchasing an annuity. Annuities provide a stable, regular income for life, which can be reassuring for those seeking certainty in their financial planning.

The popularity of annuities has grown in recent years, and many pension providers now offer full-market annuity brokerage.

This service helps retirees understand the best options available, ensuring they maximise their pension pots' value while maintaining control over their finances.

Another option is taking the entire pension pot as a lump sum. This might attract higher taxes, though, especially if a large amount is withdrawn in a single year, because it could be added to other earnings and increase the overall tax rate.

However, up to 25% of the pension savings can be taken as a one-off tax-free lump sum – a significant benefit for many retirees.

This tax-free amount is usually capped at £268,275, unless they have registered lump sum rights under primary or enhanced protection.

Before taking a lump sum it is essential for employees to research the implications of doing so and, where necessary, take advice about their circumstances.

It is important to note that retirees don't have to stick to one option.

Combining different methods – such as taking part of the pot as a lump sum while investing the remainder for flexible or guaranteed income – can offer a balanced approach that adapts to changing needs and market conditions.

Employers can help employees by providing clear information and access to advice on the options, helping employees make choices that best suit their retirement goals.

This support is invaluable in helping retirees navigate the complexities of pension withdrawals, ensuring they make the most of their hard-earned savings.

Proactive engagement can ensure secure retirement

The changing context for construction industry pensions demands proactive engagement from employers and employees alike to ensure a stable and secure retirement.

While employees hold ultimate responsibility for their retirement decisions, employers play a crucial role in guiding their workforce through effective saving strategies and investment adjustments, as well as making employees aware of their options.

By fostering a culture of informed decision-making and robust financial planning, SMEs can help secure a financially stable future for their employees, enabling them to retire with confidence and peace of mind.

Nikki Moss is head of implementation and service delivery management at Smart Pension

Contact Nikki: Email

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