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Whilst we may not be putting enough aside, we do expect our employers to help us work out the best way to save.

Recent research also suggests we expect our employers to help us determine the best options available to adequately prepare for retirement. 

Yet, troublingly, it seems employers are failing to offer their employees adequate and correct pension guidance.

Education programme 

A survey conducted by financial education provider JPMorgan INVEST of the top FTSE 350 companies reveals that less than 1 in 20 have an active pension education programme. 

Even more worryingly, one in five (21 per cent) continue to focus solely on annuities, which seriously limits the choices available at retirement. 

Moreover, JPMorgan INVEST’s research has uncovered that companies largely rely on passive information sources to inform employees about pensions.

A third rely heavily on brochures, their own intranets and letters, rather than an education programme that actively explains the spectrum of retirement options.

Jonathan Watts-Lay, director at JPMorgan INVEST suggests that this situation can easily be remedied by providing a comprehensive education programme. 

He says that these education programmes should, amongst other things answer two important issues.

“Firstly, the should address ‘how much should I save for retirement?’ And secondly, ‘what options do I have available to me at retirement to maximise the income from my pension fund?” Watts-Lay explains.

Share incentive plan 

In a recent NAPF report, it was highlighted that 87 per cent of defined contribution (DC) experts believe that employees look to their employer to help them understand how much to save in terms of pensions and which funds to invest in.

Watts-Lay says that one way to help employees save is to explain the benefits of using share schemes to increase pensions, especially a share incentive plan (SIP).

“For example, if taking advantage of a ‘SIP’, employees may buy shares from pre-tax income, giving them an effective ‘discount’ because of tax and National Insurance savings,” he adds.

After 5 years these ‘SIP’ savings can be transferred directly into a pension - which attracts income tax relief -, thus attracting two 'helpings' of income tax relief on the same initial outlay.

This has three significant advantages:

• it creates a larger fund from the effect of ‘double tax relief’;
• it offers greater flexibility in the years before the capital is committed to  pension – particularly attractive for people a long way off retirement, and
• it potentially improves tax effectiveness as  delaying the commitment to pension may have the benefit of many individuals moving from being a basic rate tax payer to a higher rate tax payer therefore they receive more tax relief on their pension contribution.

Watts-Lay notes that most companies are not in a position to allow transfer of stock from their share schemes directly into pension, as they don’t want to take on the additional administrative burden, cost and restrictions on levels of ‘self-held’ stock.

Tax relief 

Pensions Simplification came up with a solution, however, which is concurrency. This allows employers to maintain the existing company scheme whilst offering a Self Invested Personal Pension (SIPP), to run alongside it known as the Workplace SIPP.

This allows employees to link share schemes and pensions, but also allows the transfer of stock.

Regulations allow for tax relief to be claimed on contributions amounting up to the lower of 100 per cent of earnings (or equivalent) and £225,000 this tax year.

Many occupational schemes, however, limit their employees to a level below this.

When it comes to retirement, employees have a ‘choice’ and can opt for the most appropriate form of retirement income to suit their personal needs.

These include taking an annuity or an Unsecured Pension (USP) – pre age 75, using a combination of an annuity & USP, or an Alternatively Secured Pension (ASP) – post age 75.

An employee can even take partial retirement and possibly work part time supplementing their income in any of these ways.

Alternative to annuities 

Watts-Lay stresses the importance of fully understanding the array of pension options.

He says it is vital that employees understand their options at retirement as a wrong decision can put them at a disadvantage for the rest of their lives.

“I believe choosing the most appropriate way to take retirement income is one of the most important decisions an employee will ever make – so employers must play their part in ensuring employees understand the options,” he concludes.

In November 2006, the Pensions Regulator expressed the need to offer employees an alternative to annuities while also supporting the need for education and guidance in the workplace.

JPMorgan INVEST’s research suggests that much still must be done before employees have access to the type of education that will allow them to maximise their retirement income. 

The onus is now on employers and trustees to ensure members understand these options at the point of retirement.

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Related links

• JPMorgan INVEST