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Are higher earners in danger of heading towards retirement poverty?

Financial security in retirement is a concern for everyone. And when it comes to their finances, people expect more than ever from their employer.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in. These articles are intended for employers and HR professionals, not for individual investors.

Retirement is one of the most important financial milestones in a person's life, but it can also be one of the most daunting. Despite larger salaries, higher earners are struggling to save enough to retire comfortably.

Higher salaries don’t automatically translate into higher income in retirement.

While higher earners may have more disposable income, they also tend to have more debt as a percentage of their income, which can impact their ability to save for a comfortable retirement.

What is a ‘comfortable’ retirement?

The Pensions and Lifetime Savings Association (PLSA) have recently updated their retirement income standards. These standards provide an indication of the amount of annual income you might need to support yourself in retirement.

The PLSA say that to enjoy a ‘moderate’ annual retirement income, the annual cost would be £23,300 for a single retiree and £34,000 for a couple. A ‘comfortable’ standard of living would cost an estimated £37,300 for one person and £54,500 for a two-person household each year.

A ‘comfortable’ standard affords the things plenty of people expect to be able to enjoy in retirement, like several overseas holidays and trips to the theatre. They’re also calculated for those that live outside London. So for those based in the capital, the figures are higher still.

The latest data from our Savings and Resilience Barometer Tool shows only one third (32%) of the highest earning households are currently on track to achieve a comfortable retirement income.

Higher earners are likely to have a bit more wiggle room in their budgets, yet very few are on track. Times are undeniably tough for everyone right now. For many people, a ‘comfortable‘ retirement is simply out of reach.

The changing role of the employer

The employer-employee relationship matters. And employers can play a significant part in helping all employees face their retirement with more confidence.

Research from Royal London shows that 68% of employees trust their employer – ranking behind only their family and their bank.

Both employers and employees contribute to accumulate a pension. The same research from Royal London shows that 23% of employees consider their employer a great source of guidance for their pension, after family and friends (35%) and professional advice (28%).

By talking to employees about pension and retirement planning in the years running up to retirement, employers can play a major part in helping employees retire with more confidence.

Happy and financially secure employees are more productive and engaged, which can lead to increased productivity and success for the company.

Workplace pension

One of the most effective ways to help employees prepare for retirement is by offering a competitive workplace pension.

  • Employee retention: Providing a comprehensive benefits package, including a matching pension plan, can help attract and retain top talent.
  • Employee engagement: Offering a matching pension contribution can increase employee engagement and motivation as they feel that their employer is invested in their future.
  • Increased savings: Matching contributions can encourage employees to save more for their retirement and provide them with a greater sense of financial security.

It could be that many higher earners have adopted a ‘set and forget’ attitude to their pensions. The reality is that, if this isn’t addressed, they face a drastic change in lifestyle for which they may not be prepared.

Regular prompts to reassess pension contributions could prove pivotal in terms of getting people back on track when times get better.

Learn more about the HL Group Self-Invested Personal Pension

Financial resilience education

Financial education is another way to support higher earners. Employers can offer access to educational resources, such as online courses, seminars and workshops.

It’s important to understand the financial concerns of higher earners and offer support to help them achieve financial security in retirement. A comprehensive financial wellness programme can be a valuable tool to help employees, particularly higher earners, to make informed decisions.

Knowing where to start is tricky. It’s important to provide employees with the tools they need to prepare for the unexpected and the long term.

Learn more about financial wellbeing in the workplace

Encouraging debt management

Debt could be the Achilles’ heel of top earners. Higher earners often have more debt than other employees, and it's important for employers to encourage debt management.

Help from employers could include offering debt management resources, such as credit counselling services, or encouraging employees to take advantage of debt management programmes.

Getting on top of debt is one of the top priorities in our 5 to Thrive series. Our experts have provided 5 key building blocks for employees to consider helping you secure their financial future.

Find out more about 5 to Thrive

Signposting financial planning and advice

A comprehensive financial wellness programme, along with access to financial advice and educational resources, can be valuable tools for helping employees achieve financial security in retirement. Financial advice isn’t right for everything. For higher earners, an adviser could help with things like estate planning services, tax planning and other financial planning resources.

Retirement planning is an important aspect of financial planning, and it’s essential that higher earners have the resources and support they need to prepare for their futures.

Employers play a critical role in helping their employees plan for retirement, and by offering financial support and education, they can help ensure that their employees have a comfortable and secure future.

Please keep in mind the information in this article and the tools we’ve linked to are not personal financial advice. If you or your employees are unsure if a course of action is suitable, please seek advice.

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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in. These articles are intended for employers and HR professionals, not for individual investors.

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