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6 Ways for Employers and Employees to Engage with Pensions Amid the Cost-of-Living Crisis

21 September 2023

The cost-of-living crisis continues to weigh heavily on individuals, forcing a re-evaluation of retirement plans for many. Recent research by WEALTH at work has uncovered concerning statistics: a staggering eight in 10 employees (83%) are worried that the cost-of-living crisis will necessitate working longer before they can comfortably retire.

To cope with immediate financial pressures, some have resorted to reducing or ceasing their pension contributions altogether (13%), while nearly three in 10 (29%) contemplate discontinuing payments in the future, and one third (30%) are considering reducing future contributions.

In the face of these alarming numbers, both employers and employees must take proactive steps to engage with pension planning. In this blog post, we'll explore ways to engage with pensions amid the cost-of-living crisis, offering strategies to navigate current financial challenges and secure a more stable retirement.

For Employers

  1. Transparent Communication
    Employers should proactively address employees' concerns about the cost of living and its impact on retirement savings. Provide regular updates and educational materials explaining the importance of consistent pension contributions.

  2. Offer Educational Programs
    Employers can introduce educational programs that include guidance on managing expenses, budgeting, and debt reduction. These programs can help employees alleviate immediate financial pressures and free up resources for retirement savings.

  3. Flexible Pension Contribution Options
    Consider offering flexible pension contribution options that allow employees to adjust their contributions based on their current financial situation. This can help employees continue saving for retirement even during challenging times.

  4. Encourage Early Engagement
    Encourage employees to engage with their pensions early in their careers. Emphasise the benefits of compound interest and how even small contributions over time can make a substantial difference in retirement savings.

  5. Investment Diversification
    Educate employees about the importance of a diversified investment portfolio within their pension plan. A well-balanced portfolio can potentially mitigate the impact of market volatility and boost long-term returns.

  6. Professional Guidance
    Provide access to financial advisors, these experts can help employees navigate the current financial landscape, make informed decisions, and set realistic retirement goals.

For Employees

In these times of rising living costs and financial uncertainty, employees have a vital role to play in securing their retirement. Here are some proactive steps individuals can take:

  1. Assess Your Financial Situation
    Start by taking a close look at your current financial situation. Create a budget to understand your income, expenses, and areas where you can potentially cut back. Knowing where your money is going is the first step towards making informed financial decisions.

  2. Employer Matching
    If your employer offers a pension plan with a matching contribution, take full advantage of it. It's essentially free money that can boost your retirement savings. Contribute at least enough to receive the maximum employer match.

  3. Educate Yourself
    Take the initiative to educate yourself about your pension plan. Understand the investment options available, the fees involved, and the potential for growth over time. Ask your employer for educational resources or attend pension webinars.

  4. Review and Adjust Your Portfolio
    Regularly review your pension portfolio to ensure it aligns with your long-term goals and risk tolerance. Adjust your investments as needed to respond to changes in your financial situation or market conditions.

  5. Control Lifestyle Inflation
    As your income grows, be cautious about lifestyle inflation. Rather than increasing your spending with each pay raise, consider allocating a portion of the extra income toward retirement savings.

  6. Develop an Emergency Fund
    To avoid dipping into your retirement savings during unexpected financial crises, build an emergency fund. Having a cushion for unforeseen expenses can help protect your long-term retirement goals.

In the face of the cost-of-living crisis, it's crucial for both employees and employers to take proactive steps to secure their financial future. By making informed decisions, maintaining a focus on retirement savings, and seeking guidance when needed, individuals can navigate these challenges and work towards a more secure retirement. Employers also have a significant role to play in providing resources, education, and flexible pension options to support their workforce in these uncertain times.

Remember that your retirement is ultimately in your hands, and every effort you make today, as both an employee and employer, can have a positive impact on your future financial well-being.

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